All kinds of businesses must be familiar with invoices because they are used in business operations. As a result, invoices are one of the most important documents that companies must handle effectively. However, there are various types of invoices, and not all serve the same purpose. Two commonly used types are the proforma invoice and the commercial invoice. While they may seem similar, they differ in look and business goals.
This article will explain the key difference between a proforma invoice vs a commercial invoice.
What is a Proforma Invoice?
A proforma invoice is a preliminary or estimated invoice that is frequently used in business operations, particularly international trade. This type of invoice is sent before the shipment of products or services and provides an outline of transaction data such as pricing, quantity, and payment terms. It’s often requested by buyers to assist in arranging financing or credit for their purchase.
Proforma invoices are especially important in international transactions because some countries demand them when estimating currency exchange rates, import rules, and related taxes.
What is a Commercial Invoice?
A commercial invoice is similar to the proforma invoice that is used in international trade, typically for transactions involving the export or import of products and services. Unlike a proforma invoice, which is a preliminary estimate, a commercial invoice is issued after the buyer confirms the proforma invoice and commits to the purchase. This invoice contains a detailed description of the products or services, such as quantities, prices, and the total payment due from the buyer.
The commercial invoice is a formal request for payment. While a proforma invoice provides an initial outline for confirmation of the product or service, a commercial invoice is an invoice for requesting payment from the buyer.
Key Differences Between Proforma Invoice vs Commercial Invoice
1. Timing of Issuance
One of the key differences between a proforma invoice and a commercial invoice is when each is issued. A proforma invoice is issued before the buyer pays for or receives the products or services. It is a preliminary document used to confirm or negotiate the sale price and terms. After the buyer confirms the proforma invoice, the seller sends a commercial invoice. This commercial invoice is provided once the sale is confirmed and includes the finalized prices for the products or services.
2. Content of the Invoice
Although both the information in the invoice appears to be similar, there are some differences in the details provided. A proforma invoice includes estimated pricing and terms to give the buyer an overview. A commercial invoice includes the final price to be paid by the buyer as well as payment instructions.
3. The Use in Business
As preliminary documents, proforma invoices are primarily used to confirm transaction details and facilitate negotiation between the buyer and seller. It is also frequently required to comply with import-export rules in some nations. On the other hand, the commercial invoice serves as a formal payment request to the buyer. As a final document, it contains more detailed information than a proforma invoice.
Conclusion
That is the explanation for the differences between a proforma invoice and a commercial invoice. These invoices are obviously essential in business; thus, they must be handled carefully to ensure a smooth and effective operation.
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