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Understanding the difference: pro forma invoice vs commercial invoice

Logistics advice · 4 Mins Read

Understanding the difference: pro forma invoice vs commercial invoice

Pro forma and commercial invoices are commonly used in global trade. Basically, the main distinction is that one is used as an estimate while the other is a bill for goods sold. A pro forma invoice is created by the seller and submitted to the buyer in advance of shipping goods. It outlines the kind and quantity of goods, their value, shipping costs, and any other charges that will be due on delivery. 

Essentially, it’s an offer from the seller to provide certain goods at a specified price. A commercial invoice is issued after the goods have been shipped. It’s a bill for the sale, detailing what was sold, how much it cost, and when payment is due. This type of invoice is generally accepted as evidence of a debt owed by the buyer to the seller.

This article serves as a guide for anyone that wishes to export products from Malaysia to regions such as Europe, North America, and Oceania. It will describe in detail what a commercial invoice and pro forma invoice is, so that you can decide which is more applicable in your case. 

What is a pro forma invoice?

“Pro forma” is Latin for “as a matter of form” and is used to describe something that has been done or provided as a courtesy or tradition rather than for a legal reason. Thus, a pro forma invoice is not a binding document; rather, it’s more of an offer from the seller to provide certain goods at a specified price. It’s often used in international trade transactions when the buyer and seller are located in different countries and need to agree on terms before goods are shipped. One example of a pro forma invoice is a customs invoice.

The main purpose of a pro forma invoice is to provide an estimated cost of goods being purchased. This allows both parties to budget for the transaction and avoid any surprises when the final invoice is issued. 

What is included in a pro forma invoice?

A pro forma invoice typically includes the following information:

  • Proposed price
  • Product Quality
  • Product quantity
  • Payment method
  • Expected delivery time

What is a commercial invoice?

A commercial invoice is a bill for the goods or services sold. It’s issued after the goods have been shipped and includes all relevant information about the transaction, such as what was sold, how much it cost, when payment is due, etc. In general, commercial invoices are used for exports that are either high value or regulated in some way. This is because they provide a more accurate picture of the transaction and can be used as supporting documentation. This is especially so in international trade transactions, as commercial invoices are often used for customs purposes. This is because they can help determine the value of goods being imported into a country for tax assessment. 

Also, a commercial invoice should be used when the buyer has already paid for the goods being shipped, as it serves as a legal bill for the transaction. However, in some cases, a commercial invoice may be issued before shipment if the buyer has made advance payment.

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What is included in a commercial invoice?

A commercial invoice typically contains information regarding the following:

  • Seller 
  • Buyer 
  • Destination
  • Mode of transport
  • The products’ HS codes 
  • Shipping carrier
  • Price
  • Payment terms and method
  • Currency of transaction
  • Other relevant information

Which type of invoice should I use?

The type of invoice you should use will depend on your individual circumstances. If you’re not sure which one to use, it’s always best to err on the side of caution and go with a commercial invoice. This is because commercial invoices are generally more binding than pro forma invoices and can be used as supporting documentation in case of any disputes. That being said, there may be some situations where a pro forma invoice makes more sense. For instance, if you are still working out the final details of a transaction with a buyer, such as price or delivery terms, a pro forma invoice can be helpful in confirming the details of the purchase. Ultimately, it’s up to you to decide which type of invoice is best for your needs. 

How customs authorities process invoices

Customs authorities in all countries typically use invoices to determine whether the goods in question may be exported or imported - for instance, in the case of restricted goods. The information contained in invoices includes details about the buyer and seller, the contents of the shipment, their price, terms of sale, insurance costs, country of origin, and the Harmonised System (HS) codes.

For anyone, the differences between some of these shipping documents can be confusing. That is why working with reliable and trusted international delivery providers is crucial, as they can offer help such as customs clearance to simplify shipping and reduce the chances of any delays.

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