Difference between a Proforma Invoice and a Commercial invoice

Difference between a Proforma Invoice and a Commercial invoice

When you step on an international trade platform, you need to be cautious mainly about the invoices, namely the pro forma invoice and the commercial invoice . Both of these invoices have a significant role in the international trade and logistics sectors. The crucial invoices tend to serve different purposes related to perishable cargo exports .

In this blog, we will guide you through the details of pro forma and commercial invoices, including their key features and differences that relate to the export of perishable goods.

What is a Proforma Invoice?

A pro forma invoice is a preliminary document that is provided to a buyer before the final transaction is made. This invoice involves the primary stages of exporting the perishable goods that need to be shipped. The bill is prepared by the exporters and provides an estimated price, quantities, shipping bills, and a fixed timeline.

What is the purpose of a proforma invoice?

Proforma invoice offers an estimated cost to the buyer and a detailed description of the perishable goods that intend to be shipped. This enables the buyer to make a precise decision regarding the product cost, specifications and terms of delivery. This document helps in obtaining certain approvals such as import permit and license. Proforma invoices are valid for a limited period. It allows the buyer to make a conclusive decision whether to purchase or cancel the order.

Proforma invoices serves needful purpose

1. Import License Application: It may be necessary for importers to obtain an import license in order to enter certain nations. Along with the application, a pro forma invoice outlining the key components of the planned import transaction must be submitted.

2. Pre- Shipment Check: For certain items or trade agreements, a prior inspection is required. Prior to shipping, the pro forma invoice verifies that food quality and safety regulations are followed.

3. Letter of Credit: Letters of credit are a common tool used by importers to ensure that exporters are paid, particularly when goods are exported from India.

4. Currency Exchange: In international trade affairs, the pro forma invoice helps the buyer facilitate the currency exchange needed to make transactions.

5. Comprehensive Information: Though not a legal shipping document, the pro forma invoice keeps track of the product, quantities, cost, and other transaction details. This enables the buyer to collaborate with the logistics services to receive the goods in a secure manner.

What are the key components of a pro forma invoice?

  1. A Pro forma Invoice appears on the document.
  2. Company name and address of the seller
  3. Buyer's billing and shipping addresses.
  4. Terms of the transaction and payment information
  5. Created invoices and their expiration dates
  6. Details about the products or services that will be offered.
  7. Value and volume of the products or services
  8. Tariffs and savings
  9. The total amount due

What is a Commercial Invoice?

When conducting business internationally, an authorized document known as a commercial invoice is useful for customs clearance. It is a document that lists the amount and cost of goods being transported across international boundaries.Through the commercial invoices, the customs department can ascertain the amount of taxes and duties assessed on the import of goods. The invoice is considered a legal contract between the buyer and the seller engaged in the transaction.

When it comes to import and export business, commercial invoices are mandatory to ship goods globally by land or ocean freight. This official document enables the customs authorities to review the import duties and taxes to be paid for the goods being shipped.

The Commercial Invoice serves various purposes

1. Formal Payment Request: The commercial invoice serves as a formal request for payment sent by the seller (exporter) to the buyer (importer) for the products or services that were traded in the international trade transaction.

2. Comprehensive Transaction Record: The commercial invoice gives a detailed description of the transaction and provides a plethora of information about the goods or services that were exchanged. This includes information about quantity, specifications, unit costs, and other relevant matters.

3. Customs Clearance: The commercial invoice is an essential document for outbound payment that customs authorities use to assess duties and taxes on imported products, and it plays a critical role in customs clearance. The commercial invoice is used by customs officers to verify that disclosed values and other transaction details are accurate.

4. Financial Record-keeping: The commercial invoice is used by the buyer for accounting and to keep track of financial records. It facilitates financial transactions and monitors costs.

5. Shipping Details: The coordination of the logistics of goods transportation is managed by the commercial invoice, which contains all the important information about the shipment of products, including the destination port, shipping mode, and other relevant shipping parameters.

6. Authorized Documentation: The commercial invoice, which serves as a legal document, offers proof of the completed transaction and the financial obligations made by the buyer and seller.

7. Enables Letter of Credit: The commercial invoice is sent to the issuing bank to start the letter of credit procedure in transactions involving letters of credit. It simplifies the financial part of the transaction by providing the information needed for payment.

What are the key components of a commercial invoice?

1. Details about the buyer and seller

  • Name, address, buyer's tax information, and buyer's contact details
  • Name, address, seller's contact information, and tax information

2. Details about the transaction

  • The invoicing date
  • Number of invoice
  • Order number, 
  • Goods description
  • The commodities' quantity and worth
  • Payment method and related guidelines
  • The GSTIN and IEC Code
  • Origin nation

3. Shipping related details:

  • Freight cost 
  • Shipping route
  • Date of dispatch
  • Total weight
  • Count of the packets
  • Insurance fees

The differences between the Proforma and Commercial Invoice are as follows

A pro forma invoice is quite similar to a commercial invoice in almost all cases. It provides the buyer with information about the products that the seller has yet to dispatch. On the other hand, a commercial invoice mentions the details of the product and sends it to the buyer after the product has been delivered by the seller.

When conducting a small-scale transaction or before signing the formal one, a pro forma invoice may be used as a contract. It is primarily used for:

  • Goods citation. Importers could have a better idea about products and landing expenses.
  • Submitting applications for import permits, foreign exchange licenses, and letters of credit in several nations. In certain nations, it might also be helpful for customs clearance.
  • Proforma invoices are not official documents. There is no legal obligation on the part of the importer or the supplier.

A commercial invoice is a legal document necessary in every step of international transactions. They are mainly used for:

  • The invoice is mandatory for customs to determine the taxes and duties and other import duties to provide clearance of goods.
  • This invoice makes it easy for the importers to check that the amount of goods and quantities being shipped are maintained as listed in the letter of credit. 
  • It is a must to abide by the important instructions provided by the commercial invoice to the banks of both parties, the insurance companies, and the freight forwarders.
  • A commercial invoice can be placed if, in any case, the bill of exchange is not available.

From the above discussion, it’s been clear that the wrong use of an invoice can have major consequences for your import and export business. Gaining an understanding of the distinctions between a pro forma and a commercial invoice will facilitate the overseas delivery of perishable commodities. Citrus Freight makes it simple for import and export companies to process these invoices so that your items are shipped without delay.