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Do you ever feel overwhelmed by all of the paperwork associated with shipping goods internationally?
Managing the financials of your business can be a cumbersome task, especially when you add in the complexities of international shipping. A critical piece of paperwork for any shipment is an invoice, however, with so many different types it could leave you feeling a bit overwhelmed.
Two of the most common types of invoices associated with international shipping are proforma invoices and commercial invoices, but do you know the difference between them?
To make sense of it all, we’ve created this guide to explain the difference between a proforma and a commercial invoice. While they may appear alike, their purposes are distinct. Let's delve deeper into these two documents to understand their differences better.
What Is a Proforma Invoice?
A proforma invoice is an estimate of what you will be charged for the goods or services you are receiving. It is typically issued before goods or services have been provided, and it can also provide an estimated cost of goods and services that may not yet be available.
What Is a Commercial Invoice?
A commercial invoice is very similar to a pro forma invoice in that it also outlines what goods have been purchased and how much they cost. However, unlike proforma invoices, commercial invoices are used after goods have been purchased. This document must accompany all shipments sent within international borders for customs officials to assess any duties or taxes due on imported goods accurately.
They serve as proof of sale and support any claims made at customs or when making import/export declarations. In addition to providing detailed information about what’s inside the shipment, it also contains essential information like shipping dates and delivery times.
The 4 Differences Between Proforma and Commercial Invoices
Timing
As mentioned before, proforma invoices are issued before goods or services are provided. In contrast, commercial invoices are then sent to the buyer after delivery of the goods or services to provide an accurate record of what was purchased and from whom it was purchased.
Purpose
The purpose of a proforma invoice is typically two-fold: informing customers in advance about the costs associated with their purchase, and providing exporters with the necessary information—such as details on the item description, quantity, unit price, and terms of delivery—so they can obtain financing from a bank or the necessary permits.
Commercial invoices, on the other hand, provide an official record of sale, which is often required by customs officials when shipping goods internationally. It's used by customs officials to assess any duties or taxes due on imported goods accurately.
Legality
Proforma invoices are not legally binding documents and are generally used for estimates. On the other hand, commercial invoices are legally binding documents that provide proof of the goods and services purchased.
Accounting
While proforma invoices can't be used for accounting services, they can help with budgeting. Commercial invoices, however, are used for accounting because they provide an accurate record of sales and can be used to track income. Therefore, they should be kept in your records with supporting documents such as purchase orders to demonstrate proof of the transaction.
When to Use a Proforma vs. Commercial Invoice?
You should always use both shipping documents in any commercial transaction involving international trade.
While a proforma invoice helps you secure financing and provides an estimate of what goods or services will cost, a commercial invoice is needed to provide proof of the sale and is necessary for customs clearance.
Understanding the difference between proforma and commercial invoices can help ensure that your international shipments are properly declared, taxed, and tracked — all while protecting you from unwanted legal issues.
Don't Get Stuck in a Paperwork Jam
Proforma and commercial invoices serve different roles in international trade but are equally crucial in ensuring goods are properly tracked through the supply chain process.
Businesses need to understand which documents are necessary when shipping products abroad in order to ensure that everything goes smoothly with no delays due to incorrect paperwork requirements.
Having these documents in hand before shipment will ensure your goods arrive on time while keeping you in compliance with international trading regulations.
Cargoflip’s suite of solutions can help you manage your documents and keep track of shipment costs from anywhere, anytime. Get in touch with us today to learn how Cargoflip can make international shipping smooth sailing for your business.
