Proforma Invoice VS Commercial Invoice

In international trade, invoices are undoubtedly one of the most important documents, especially the “Proforma Invoice” and “Commercial Invoice.”

These two types of invoices are often confused, but they differ significantly in terms of purpose, content, and legal validity. Buyers importing furniture or other goods from China should thoroughly understand and properly use them to ensure smooth international trade. 

Now, let’s discuss their meanings, different functions, and how to use them correctly.

1. Proforma Invoice

At the early stages of an international trade, the Proforma Invoice is used for quoting prices and confirming trade terms. It is typically considered a letter of intent between the buyer and seller.

Its main purposes include:

1. Price Reference: The Proforma Invoice details the product prices, quantities, payment terms, and shipping methods, making it easier for the buyer to confirm the terms.
2. Application for Import License: In some countries, the buyer or importer must submit the Proforma Invoice to apply for an import license, ensuring the goods can smoothly enter the local market.
3. Application for Letter of Credit: When the buyer applies for a letter of credit with a bank, the bank usually requires a Proforma Invoice as proof of the transaction. This allows both the buyer and seller to confirm the goods’ value and trade terms in advance, reducing transaction risks.

2. Commercial Invoice

Unlike Proforma Invoice, the Commercial Invoice is the final, official sales contract invoice that holds legal validity. It is primarily used in the following situations:

1. Payment Evidence: The Commercial Invoice serves as the basis for the buyer to make payment to the seller, providing financial security for the entire transaction.
2. Customs Clearance Document: The Commercial Invoice is crucial in the customs clearance process, as customs uses the invoice amount to calculate duties, taxes, and other fees.
3. Letter of Credit Settlement: In the letter of credit payment process, the bank releases funds based on the Commercial Invoice, ensuring the accuracy of the transaction amount.

3. Difference in the content

The content of a Commercial Invoice is more detailed and stringent compared to a Proforma Invoice. It typically includes the following:

1. Buyer and Seller Information: Including company names, addresses, contact details, and other relevant information. 
2. Product Description: Specifications, model numbers, quantities, unit prices, and total prices (with currency type specified).
3. Payment terms: Such as cash, T/T (wire transfer), L/C (letter of credit), O/A etc.
4. Incoterms: Such as EX-WORK, FOB, CIF etc.
5. HS Codes: For customs clearance purposes.
6. Additional Charges: Including taxes, shipping costs, insurance fees, and other associated expenses.
7. Exporting and Destination Country Information: The relevant details about the countries involved in the trade.
8. Invoice Number and Date: The invoice should also clearly state “Commercial Invoice”.

The accuracy of these details directly affects the smooth processing of import customs clearance, payment, and subsequent procedures. Buyers importing furniture or other goods from China should carefully review the Proforma Invoice and Commercial Invoice sent by their China suppliers to ensure that all information is correct, in order to avoid unnecessary complications in their import business.

4. Difference in the legal effect

The Proforma Invoice is primarily used in the early stages of international trade for quoting prices and can be modified freely, as it does not have legal validity. 

In contrast, the Commercial Invoice holds legal validity and should not be used casually in the quoting phase, as doing so could lead to data discrepancies and even affect the application for a letter of credit. 

Misusing a Commercial Invoice as a Proforma Invoice could have negative impacts on international trade.

5. Difference in the process

In international trade, the process typically begins with the Proforma Invoice to confirm the intent between the buyer and seller. Once the trade terms are agreed upon and the transaction is carried out, the Proforma Invoice is then replaced by the Commercial Invoice.

In other words, the Proforma Invoice serves as a reference before the goods are shipped, while the Commercial Invoice becomes the official document for customs clearance and payment once the transaction is finalized. This gradual transition ensures the rigor and legality of the foreign trade process.

6. Summary

The Proforma Invoice and Commercial Invoice each serve distinct purposes in international trade. Both buyers and sellers must carefully differentiate between these two types of invoices, understanding their respective uses and legal validity, in order to comply with the requirements of customs, banks, and other third-party institutions.

Proper use of both the Proforma Invoice and Commercial Invoice not only enhances business efficiency but also helps mitigate potential trade risks, providing a safeguard for the smooth completion of each import and export business.