Proforma Invoice vs Commercial Invoice
Most people are aware of the words invoice and bill as they themselves pay so many invoices and bills every month from their mobile service provider to utility service providers. However, in international trade, there are two terms Proforma invoice and Commercial invoice that are similar in nature and thus, very confusing to those who have just started out. This article tries to differentiate between Proforma and commercial invoices to enable people in international trade use the correct term in different circumstances.
When a seller (manufacturer or seller) prepares invoices for international buyers, he has to make two different kinds of invoices, Proforma as well as commercial invoices. Proforma invoice spells out the rights and obligations of the buyer, as well as the seller, and is equivalent to the contract between the two parties. On the other hand, commercial invoice pertains more to taxes and customs clearances. Both invoices have different roles and functions to perform. While both invoices are sent by the seller to the buyer, Proforma invoice is that is sent earlier than commercial invoice.
Sometimes also referred to as Predict Invoice, after both sides agree upon a deal, Proforma invoice serves the purpose of informing the prospective customer all about the form and content of the actual invoice that follows suit. Actually, importer makes a request for such a document from the exporter that contains every detail about the transaction that is to take place such as name of the cargo, unit price, specification, pricing, total value, terms of payment. This Proforma invoice is used by the importer to apply for an import license or foreign exchange from the relevant government department. It has to be remembered that Proforma invoice is not final or formal, and it cannot be used for collection of money. The amount and pricing mentioned in Proforma invoice are always subject to change, and so mentioned in the Proforma invoice. This implies that Proforma invoice is at best estimation in nature and a final invoice, called commercial invoice always gets issued after Proforma invoice.
The three main functions or purposes served by Proforma invoice are as follows.
• It allows buyer to apply for import license and also for foreign exchange to make payment to the seller or exporter.
• It acts as a confirmation of the deal that takes place after the buyer confirms receipt of Proforma invoice.
• It is an estimate that reveals all information regarding cargo and its pricing as well as pricing of the items to be supplied.
It is actual bill of the transaction that takes place. It is issued by the seller to the buyer, and carries all details about the prices of the items supplied along with relevant taxes and customs being charged from the buyer. In most cases, the details contained in a commercial invoice are same as that in a Proforma invoice, but sometimes there are changes that reflect changes in the rates of cargo and customs. It is commercial invoice that is used by a government to assess exact duties to be collected from the buyer. These invoices are also used by many countries as a proof so as to keep a check on imports. Any seller or exporter must check with the importer as to what are exact requirements that need to be included in the commercial invoice.
What’s the difference between Proforma Invoice and Commercial Invoice?
• Proforma invoice is at best estimation, whereas commercial invoice is the actual bill that needs to be paid by the importer.
• Proforma serves an important purpose of being a document that is used by the importer to secure import license as well as foreign exchange.
• Proforma tells all details about cargo and custom pricing.