Pro Forma Invoice vs. Commercial Invoice (With FAQs)

By Indeed Editorial Team

Published 27 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Invoices are vital financial documents that help businesses entities, sellers, services providers and freelancers manage payments and budgets. Most companies and individuals use two types of invoices to expedite the sales process and streamline the payment and delivery of products, namely the pro forma invoice and commercial invoice. Learning about the differences between these invoices can help you use them effectively. In this article, we define pro forma invoice vs. commercial invoice, explain their differences and answer some frequently asked questions about them.

Definition of pro forma invoice vs. commercial invoice

Understanding the definition of pro forma invoice vs. commercial invoice can help you determine their differences effectively:

What is a pro forma invoice?

A pro forma invoice is a document that gives the buyer an estimate of the price of goods or services before their delivery. Pro forma literally means as a matter of form and businesses, sellers and freelancers may use it when it's challenging to provide exact charges in exchange for a particular product or service. Other than the cost of production or services, a pro forma invoice also generally includes information like commission rates, fees, taxes, delivery terms, custom clearance fees and additional charges.

Buyers use the pro forma invoice to estimate the total expenses they might incur and can decide whether to place the order. Almost all industries use the pro forma invoice to get approvals as a part of their internal purchase processes. The final invoice gets issued after the delivery of the goods or services and may or may not match the pro forma invoice. Businesses that import and export goods or services use pro forma invoices extensively.

What is a commercial invoice?

A commercial invoice is a final sales invoice containing all the details of the actual production and delivery expenses. These invoices get issued after the seller provides the goods or services and includes the exact details of the items or services rendered, as opposed to estimates in a pro forma invoice. Commercial invoices usually serve as legal records of the transactions that take place between two entities as it gets issued after the delivery of goods or services.

A commercial invoice typically includes the name, address, contact details and tax information of the buyer and seller. It also includes the details of the goods or services, their individual and cumulative price, the terms of payment and shipping details, if any. Once a commercial invoice gets issued, both entities can book the entry in their accounts.

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Differences between a pro forma invoice and a commercial invoice

While both the pro forma and commercial invoices contain similar information, they're significantly different. Here are some prominent differences between the two types of invoices:

Purpose

Sellers usually create pro forma invoices to inform buyers about the anticipated costs and prevent any delay during transfers through customs. Typical items that use pro forma invoices may include product samples, personal objects, marketing assets and other items marked for return.

Commercial invoices provide the exact cost and details of products to the buyer. Since they get issued along with or after the delivery, commercial invoices can take considerable time to prepare. In this case, businesses can use a pro forma invoice to expedite the shipping if it's taking time to prepare the commercial invoice with accurate details.

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Format

While there aren't many differences between both types of invoice formats, the minor changes that exist are important. Pro forma invoices have the words pro forma written clearly on them to ensure that the buyer knows this. Commercial invoices don't necessarily have to mention the term commercial and can skip mentioning the type. Any specific product information, such as a delivery timeline or terms of payment, can also vary across both types of invoices.

Details included

Both types of invoices include the following details:

  • date of creating the invoice

  • seller's company details

  • buyer's company details

  • shipment method

  • shipment type

  • reference number

  • expected date of delivery

  • method of payment

  • terms of payment

  • product descriptions

  • terms of product

  • taxes

  • due date

  • final invoice amount

  • name, date and signature of an authorised representative

Pro forma invoices can contain information about projected quantities. They may also include only tentative information about shipping and delivery. Conversely, commercial invoices contain the exact quantities and product descriptions. Commercial invoices for importing and exporting goods may also include the exact shipping information, alongside information like the port of loading and discharge.

Accounting use

Pro forma invoices help companies allocate budgets and funds for the products and services they intend to purchase. As pro forma invoices help determine projected costs for purchases, they include taxes, shipping and costs for customs duties. This helps companies choose the seller offering the most cost-effective services. Commercial invoices tell companies how much they owe to a seller. These invoices help track the cash flow and account payments made to external vendors.

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Occurrence

A pro forma invoice generally gets raised right at the beginning of the sales process. At this stage, a potential buyer can generally negotiate changes and request a reduction or increase in product specifications or quantities. Conversely, commercial invoices confirm the sale details and information about the final payment that's required. There's typically no scope for change or negotiation in commercial invoices because the goods or services have already been shipped or delivered. For this reason, commercial invoices get raised towards the end of the sales process.

In most cases, once the buyer receives the pro forma invoice and agrees to the terms of the transaction, the seller procures the goods or services per the set schedule. Sellers usually send the commercial invoice during the follow-up stage when the buyer is preparing to receive or has already received the products.

FAQs about pro forma invoices vs. commercial invoices

Here are some answers to common questions about pro forma and commercial invoices:

Can a business make a payment based on a pro forma invoice?

Professionals create pro forma invoices before the production or procurement of goods and services. For this reason, the amount mentioned in them may not be the same as the final invoice amount. For payment purposes, sellers accept payment with a commercial invoice only as it contains an accurate description of goods, amount and delivery.

Related: What Is a Profit and Loss Statement? (With Types and Steps)

When the commercial invoice displays the final amount, what is the use of creating pro forma invoices?

Pro forma invoices help the buyer estimate the final cost of making a purchase. In large organisations, these documents help get approvals for budgets and purchases. Pro forma invoices are a good faith agreement between the two entities that can help both include the amount in their respective accounts. Additionally, in processes where the shipping may become significantly delayed, pro forma invoices help expedite the process.

Are pro forma invoices legally binding?

Unlike commercial invoices created at the end of the final transaction, most pro forma invoices don't carry a legal obligation between the two entities. The exact nature of their legal validity can vary depending on local laws. In some cases, a pro forma invoice may help sellers get insurance claims if there's damage during shipping. Since the commercial invoice is the final purchase document and the delivery of goods is already over, the buyer has to comply with the terms legally.

What is the process of creating a pro forma invoice?

Most companies don't automatically generate pro forma invoices to give estimates to sellers. Buyers can request the seller for a pro forma invoice before agreeing to the terms to understand the different expenses that the seller might be incurring. In contrast, commercial invoices usually get generated automatically once the transaction of goods or services is complete. Regularly creating the commercial invoice helps the seller maintain cash flow and recover payments for the goods and services delivered.

How is a pro forma invoice different from a price quotation?

Price quotations are price estimates in verbal or written form for a project or service. This is usually based on the current market rate of the product or service offered. Sellers share pro forma invoices when the buyer expresses interest or specifically asks for one. This document contains all the details of the expenses and charges that the seller would undertake to deliver a specific product or service.

Once both the buyer and seller agree on the terms and pricing, the seller procures the product or service. The price quotation amount, pro forma invoice amount and the final sales commercial invoice amount can vary significantly.

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