What is the main purpose of a proforma invoice?

The primary goal of proforma invoices is to save the client from any unforeseen fees. Before delivering the items or rendering the service, these invoices are sent to the customer. Proforma invoices typically give the buyer a precise selling price. It just needs to include the necessary details to let customs assess the necessary tariffs after taking a broad look at the items it includes.

Does a proforma invoice allow for payment?

No, the payments are not owed in response to a proforma invoice. However, the payments are processed via a standard invoice. Once all the specifics have been made clear and a payment deadline established, a document known as an invoice is sent to the client. It is a legal record that lists the goods and services sold and the payment owed.

Do proforma invoices require signatures?

The final proforma invoice must be signed by the authorized purchaser and sent back to the exporter after it has been acknowledged.

Is a proforma invoice the same as a tax invoice?

A tax invoice serves as notice to the buyer that payment is required. The proforma invoice serves as a pre-sale review of the cost, type of products, and other terms of sale for the prospective customer. The potential consumer can so decide whether or not to purchase the products based on the proforma invoice.

Does a proforma invoice require GST?

No, proforma invoices are not subject to GST. A Proforma invoice does not represent a transaction that has already occurred or that will soon occur. As a result, it is not an invoice and does not require payment of GST in accordance with GST rules.

Proforma Invoice vs Commercial Invoice: What's the Difference?

Invoicing is essential for any organization, and sending invoices is integral to every business’s daily operations, whether in retail or wholesale.

When learning the fundamentals of invoicing, you may encounter various forms of invoices, such as commercial and pro forma invoices.

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Proforma and commercial invoices are both frequently used in export procedures. However, businesses frequently get confused by both invoicing terms and use them interchangeably.

Both, however, are distinct from one another and serve different objectives.

In this blog, we will explore the “proforma invoice vs commercial invoice” subject and uncover their differences. But before that, let’s understand what exactly they are and their functions.

Let’s dive in!

Table of Content

Meaning of Both Proforma & Commercial Invoice
Difference Between Proforma & Commercial Invoice
How to Generate Proforma Invoice?
How to Generate Commercial Invoice?
Frequently Asked Questions
Final Words

Meaning of Both Proforma & Commercial Invoice

Meaning of proforma invoice

A pro forma invoice is a draft bill of sale that a seller provides to the purchasers before shipping or providing the goods or services. It contains information about the cost, quality, quantity, and terms of delivery, among other essential details.

The first step in an international sale is usually a note of inquiry from a prospective customer. The letter shows interest in one or more of your goods, outlines the prospective client’s purchase interest conditions, and requests an informal or formal estimate.

If a buyer has to secure financing for the purchase or set up a letter of credit to pay for the products, they may ask for an estimate in the format of a proforma invoice.

Additionally, certain nations might need proforma invoices if they strictly regulate their currency exchange rates, demand an import authorization, or safeguard their domestic industries by imposing import limitations on specific commodities.

A proforma invoice should be valid or recognized for a certain period. The purchaser should have a reasonable amount of time to reply, after which the proforma invoice expires. It is because you frequently quote both the cost of your goods and the cost of transportation.

Meaning of commercial invoice

A commercial invoice is sent to the purchaser after the products have been delivered or shipped. Additionally, the proforma invoice format and the format for commercial invoices are very similar.

However, it’s crucial to note that the commercial invoice verifies the precise number of goods that have actually been packaged and sent.

The commercial invoice is critical to the export procedure because it specifies not only the amount owed by the purchaser to the seller but also when and how payment should be made.

The commercial invoice functions as the primary shipping invoice document used by customs offices around the world for commodity management and valuation, providing crucial information and instructions to

The freight forwarder
The marine insurance company
Both your bank and the buyer’s bank
US and foreign customs
The import broker

Due to this, the commercial invoice must contain all the details required to execute the export transaction effectively.

Difference Between Proforma & Commercial Invoice

Point of Difference	Commercial Invoice	Proforma Invoice
Reason for issue	It fulfills the function of a legal document by serving as a record of the export sale transaction and a request for the purchaser’s final payment.	It is provided to the purchaser to give them information about the item or service they haven’t yet received from the vendor.
Contents	It includes the final agreed-upon specifications and the request for the final payment.	It does not demand payment but offers information such as the initial cost, quality, quantity, and payment terms.
Time of issue	It is given out following the delivery or rendering of goods or services for which payment is then required.	It is issued in advance of the placement of the purchase order.
Objective	It provides the purchaser with information about the payment amount due.	It aids the purchaser in choosing whether or not to place an order.
Validity	Following the issuance of the commercial invoice, the buyer is required to make the payment in accordance with the terms and conditions stipulated in the commercial invoice.	The proforma invoice will remain in effect after delivery until the buyer makes a decision regarding whether to proceed with the transaction or not.
Accounting	Buyers and sellers are both required to make entries in their respective accounting books.	The proforma invoice does not require any accounting entries.
Payment amount	It shows the entire transaction amount that must be paid.	It gives a rough estimate of the total cost of the transaction.

How to Generate Proforma Invoice?

A proforma invoice contains several important elements. Here’s a list you must make a note of

The term “proforma invoice”
Product description of the items being sold
Any applicable discounts
Invoice number
Issue date of a proforma
Buyer’s and seller’s company name and number, address, and VAT ID (if applicable)
Date of issue
Due date
Net and gross prices of the items on your proforma invoice
Total amount due
Tax rates
Shipping information
Shipping cost

One method of creating proforma invoices is to take an existing template and adjust it in Word or Excel to create your customized proforma invoice template.

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You can delete the invoice number and alter the document’s title. The proforma invoice must then be saved, attached to an email, and manually processed into a finalized invoice.

However, a faster and more convenient way to generate a proforma invoice is with invoice generation software such as InvoiceOwl.

Such software comes with pre-built invoice templates and lets you create and send your proforma invoice to your clients with complete automation in just a few clicks.

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How to Generate Commercial Invoice?

Just like a proforma invoice, a commercial invoice contains several important elements too. Here’s a list you must make a note of

Shipper’s (exporter) company name, address, and contact details
Consignee’s company name, contact details, and address
Country of origin of goods
Country of final destination
Terms of payment
Method of payment (optional)
Detailed product information (including product description, HS code, quantity, unit type, price, and currency)
Name, date, and signature of authorized company representative
Port of loading
Port of discharge
Final destination address
Invoice number and date
Buyer (3rd party, if not consignee)
Method of dispatch (road, rail, air, or sea)
Type of shipment (FCL, LCL, breakbulk, etc.)
Vessel name
Voyage number (optional)
Bill of lading number (optional field)
Marine cover policy number (optional field)
Letter of credit number (optional field)

You can manually generate a commercial invoice using a Word or Excel invoice template, just like you can with a proforma invoice. After making any necessary adjustments, you can save the invoice and email it to your client.

Exporters, at times, use incompatible Microsoft Word or Excel templates to prepare shipping documentation.

These templates could confuse customers and freight forwarders or result in expensive shipment delays, fines, and demurrage fees if important information is missing from them.

To avoid such unfortunate situations, you can also create commercial invoices using invoice generation software.

As previously stated, software like InvoiceOwl includes pre-built invoice templates and enables you to generate and email commercial invoices to your customers with complete automation and with just a few clicks.

Frequently Asked Questions

What is the main purpose of a proforma invoice?

The primary goal of proforma invoices is to save the client from any unforeseen fees. Before delivering the items or rendering the service, these invoices are sent to the customer.

Proforma invoices typically give the buyer a precise selling price. It just needs to include the necessary details to let customs assess the necessary tariffs after taking a broad look at the items it includes.
Does a proforma invoice allow for payment?

No, the payments are not owed in response to a proforma invoice. However, the payments are processed via a standard invoice.

Once all the specifics have been made clear and a payment deadline established, a document known as an invoice is sent to the client. It is a legal record that lists the goods and services sold and the payment owed.
Do proforma invoices require signatures?

The final proforma invoice must be signed by the authorized purchaser and sent back to the exporter after it has been acknowledged.
Is a proforma invoice the same as a tax invoice?

A tax invoice serves as notice to the buyer that payment is required. The proforma invoice serves as a pre-sale review of the cost, type of products, and other terms of sale for the prospective customer.

The potential consumer can so decide whether or not to purchase the products based on the proforma invoice.
Does a proforma invoice require GST?

No, proforma invoices are not subject to GST. A Proforma invoice does not represent a transaction that has already occurred or that will soon occur.

As a result, it is not an invoice and does not require payment of GST in accordance with GST rules.

Final Words

We hope this blog helped you understand the meaning of proforma invoices and commercial invoices, their key differences, and how you can generate them.

The differences between proforma and commercial invoices are minimal, and you can easily create them in Word or Excel.

But, as mentioned before, the quickest and simplest way to generate and send invoices is to use a professional online invoicing software.

Therefore, choosing the right online invoicing software is essential for creating and managing your proforma and commercial invoices.

It will automate your work processes, prevent human errors, and help you get paid faster!