Pro Forma vs. Commercial Invoice: Key Differences to Know

The main distinction between a pro forma vs. a commercial invoice is that a pro forma invoice is used when vendors and sellers are negotiating the payment terms. Meanwhile, a commercial invoice is used once both parties have agreed on the price and transaction details.

Pro forma invoices are often used in conjunction with commercial invoices by vendors and businesses catering to international customers. Doing so helps sellers organize and regulate their sales.

Keep reading if you want to learn more about the specific uses of these two invoices and gain helpful tips in determining when to use which document.

Key Takeaways

• Understanding the difference between a pro forma vs. a commercial invoice is crucial when selling or shipping international goods because it ensures transparency and prevents the possible violation of import regulations.
• One of the key differences between a pro forma vs. a commercial invoice is that the former helps sellers confirm a buyer’s order. The latter is a more finalized document that is sent once a buyer has verified their purchase and is ready to pay.
• A pro forma invoice must include a pro forma invoice label to inform the buyer that the information on it is not yet final and is subject to change.
• A commercial invoice contains information that customs authorities in the shipment’s destination country require to assess whether the goods or package passes their country’s shipping criteria and import regulations.

What is a Pro Forma Invoice, & What Is It Used For?

A pro forma invoice is a preliminary document or invoice sent to customers who have confirmed their interest in purchasing a vendor’s goods. It is issued by a seller upon providing prospective customers with information about the price of their goods.

When comparing a pro forma invoice vs. a regular invoice, the former contains tentative rates and details about the goods, while the latter shows finalized information about the transaction.

Since the information found on a pro forma invoice is tentative, that also means it is subject to change. In a way, a pro forma invoice gives buyers a chance to review the vendor’s payment terms and make additional inquiries about the goods that have piqued their interest.

Use Cases & Benefits of Pro Forma Invoices

Let’s say a buyer is interested in purchasing wholesale products but then finds that the vendor charges more than the price that they expected. As such, the customer can make last-minute changes to their orders or negotiate the price with the seller before proceeding to agree to the terms of their transaction.

Pro forma invoices are also more applicable to use when trust has already been established between the seller and the buyer. This is usually the case if the buyer is a repeat or long-time customer.

Also, when it comes to the "pro forma vs. commercial invoice" dilemma, you should note that the former is often used when customers have placed an advanced order. In turn, the vendor sends the preliminary invoice to give the customer a chance to verify the details of the transaction one last time before their order is finalized.

Furthermore, pro forma invoices are crucial in ensuring a smooth-sailing international transaction. After all, requesting refunds and renegotiating payment terms becomes a complicated process when done in the middle of a shipment or after the customer has received their order overseas.

What is a Commercial Invoice, & What Is It Used For?

A commercial invoice is issued by a business owner or an exporter whenever they need to request payment for goods sold internationally.

A typical commercial invoice contains concise information about the shipment as well as a Harmonized System (HS) code, which is used by customs authorities worldwide to categorize and easily identify products shipped from overseas.

The invoice must also contain information about the quantity and price or value of the products, the country where the product is being sold, and the specific location where the goods were manufactured.

Use Cases & Benefits of Commercial Invoice

Large-scale manufacturers and businesses catering to a global clientele are no strangers to the importance and purpose of a commercial invoice.

A pro forma and a commercial invoice usually go hand-in-hand in internationally sold or shipped goods, with the latter often succeeding the former. In other words, it is crucial that a customer acknowledge and agree with the seller’s rates and invoice payment terms to ensure transparency throughout the transaction.

Commercial invoices are also required by customs authorities to ensure that the items being shipped from other countries pass the clearing and shipment requirements. For instance, they use commercial invoices to check whether certain tariffs and taxes apply to imported goods.

Take note that commercial invoices are necessary when shipping items or orders across different countries. Purchased goods that are shipped within the same country need not warrant a commercial invoice.

What is the Difference Between Pro Forma and Commercial Invoice?

The difference between pro forma and commercial invoices lies in whether the document is used to verify a client’s order or request a payment from the customer.

There are other key factors that will help you identify a pro forma vs. a commercial invoice based on their purpose and the information that goes in each type of invoice. The tables below summarize each of these key distinctions:

Purpose

In the first table, both invoices are used to process and complete international trade or sales.

Meanwhile, a pro forma invoice is only used to estimate the prices of goods. It may not be used to charge payments from customers or monitor whether imported goods meet the recipient country’s shipment criteria.

Details or Information

Before we briefly break down the difference in details between a pro forma vs. a commercial invoice, notice how the basic information that goes in any type of pay stub, such as the customer and seller’s name and contact details, are present in both invoices.

You will also see the transaction’s specific invoice payment terms, along with the product quantity, details, and unit price. Commercial and pro forma invoices also contain the invoice number and date and any applicable taxes to the product or purchase.

As for the distinctions, a commercial invoice contains essential information that helps authorities in other countries inspect and verify whether a shipped item can be legally imported into their territory.

For instance, if the customs authorities want to determine the source of the goods, they can do so by checking the country of origin indicated on the invoice.

The gross and net weight of the product is essential in calculating the shipping costs, while the freight information helps dictate the item’s transport expenses.

A pro forma invoice does not contain details related to the item’s shipping costs, origin country, currency, or HS code because using a pro forma invoice for customs clearance is unlikely. Instead, a pro forma invoice shows the adjustments made to the product’s original price.

Sellers do this to show their customers that the necessary adjustments have been made based on their negotiation or request.

At the same time, a pro forma invoice label is important because it indicates that the said financial document is not yet finalized and that the information on the invoice is still up for the customer to review.

Which Invoice Should You Use?

Knowing when to use a pro forma vs. a commercial invoice saves you the trouble of facing possible penalties in case you attach the wrong type of invoice to your shipment.

Similarly, if you send a customer a finalized invoice before they even agree with your terms and rates, then they may feel disappointed or dissatisfied with your services and end up purchasing from a different business instead.

You may even end up facing a potential invoice dispute as a result of a simple misunderstanding with your customer.

As a rule of thumb, you must issue a commercial invoice or any type of standard invoice once you’ve reached a final agreement with your client regarding your product’s prices and the quantity of goods they wish to purchase.

It is also crucial to ensure you have constant and open communication with your customer to avoid making any mistakes once you’ve calculated the goods’ gross and net price or printed your customer’s contact information and address on your invoice.

If you are dealing with multiple orders from international clients, using cost-effective tools online, such as Paystub.org’s invoice generator, will help simplify your entire sales process.

Our user-friendly generator comes with a selection of customizable commercial and pro forma invoice templates.

It takes minutes to fill out our templates with your transaction’s essential information, enabling you to create as many invoices as you need.

You can also take advantage of our generator’s built-in calculator to guarantee your invoice reflects the correct prices and taxes.

As a result, you easily manage your sales and client orders while also ensuring you adhere to the specific customs regulations and shipping requirements of the different countries where you sell your products.

Final Thoughts

If you’re still asking yourself, “Is a pro forma invoice the same as a commercial invoice?” the answer is no. However, you can use both invoices when catering to an international target market.

Distinguishing a pro forma vs. a commercial invoice may seem daunting at first, but once you’ve narrowed down the purpose for using each invoice, identifying when to use which document becomes a cakewalk.