Proforma Invoice vs Commercial Invoice

If you run a business involved in importing and exporting of any kind, be it goods, services, or anything in between, then you'll need to know the difference between proforma invoice and commercial invoice documentation. Whenever you're selling anything for export, especially if it's to a buyer you don't have a working relationship with, then both of these types of invoices are absolutely crucial. Read my handy guide to find out everything you need to know. 

What Are Forma and Commercial Invoices Used For?

The first thing you need to know about commercial invoice vs proforma invoice is that the former is essentially a bill of sale that details how much is actually paid for a good, whilst the latter is more of a preliminary estimate. A commercial invoice is something you may already be pretty familiar with. A commercial invoice simply reflects a sale that has been completed. It is an accurate statement of the goods sold that includes the exact amount paid, including VAT and import taxes.

So, what is a pro forma invoice? This is the invoice that comes before the commercial invoice. It is essentially an estimate or speculation of the total cost to the customer of the goods and services you are rendering to them. You send a pro forma invoice to a customer before the sale is completed, but after you have agreed on a transaction. This gives them a good idea of what to expect price-wise. Crucially, a pro forma invoice can be examined by customs officials when goods are being transported to the customer so that they know the value of the import.

How Should Pro Forma and Commercial Invoices Be Formatted?

When creating either a pro forma or commercial invoice, it helps to remember that they should look almost exactly the same. In fact, the more similar they look, the better. The only difference is that the pro forma invoice should clearly be identified as such, so that the customer, and anyone else, knows that it is just an estimate.

You can use online invoicing software to auto-generate a useable pro forma or commercial invoice in just a few seconds. Both invoices need to contain a full list of goods or service rendered, the details of the seller (you), the details of the buyer (the customer) and any fees and taxes included in the transaction. 

Pro Forma and Commercial Invoices in Accounting 

For both the buyer and the seller, knowing the difference between proforma invoice vs commercial invoice documentation is crucial. As a seller, using online invoicing software for small business transactions to keep a record of your commercial invoices will help you know how much you have earned from sales, therefore telling you how much tax you owe. Your proforma invoices will allow you to get a solid idea of your incomings and outgoings so that you can budget for the year ahead.

With buyers, both invoices are essential for calculating budgets and working out how much cash needs to be released from your accounts. These expenditures will also come in handy during tax season, which is why you should consider moving from paper to e-invoicing so that you don't lose a single document. 

Now you know the differences between proforma and commercial invoices, you can manage your business transactions like a pro. Make sure to consult our guides on all of the software you need to keep your business one step ahead.