Commercial vs Proforma Invoices: Key Differences Explained

As we all know, documentation plays a crucial role in international trade and logistics. One particular document that often causes confusion is the pro forma invoice, which is frequently mistaken for a commercial invoice.

So, if you're a New Zealand importer who has just read about commercial invoices and is now eager to understand what a pro forma invoice is, let’s dive right in!

What is a Pro forma Invoice?

To understand this term, let’s first explore the meaning of 'Pro Forma'. Pro forma, which means ‘as a matter of form’ in Latin, refers to actions taken or services conducted out of courtesy or tradition rather than for a legitimate purpose.

For New Zealand importers, a pro forma invoice is a document that states the offer or preliminary bill from the seller to provide specific products at a given price. Unlike a commercial invoice, this document is not legally binding.

This document serves as a preliminary document that lists the particulars and anticipated charges of a proposed transaction. It is often given by a vendor to a potential customer before the delivery of the products or services. The objective of a pro forma invoice is to provide the buyer with an idea of how much money they may anticipate paying overall for the goods or services.

What are the key elements of a Pro forma Invoice?

As always, not all Pro forma invoices are the same, so there might be slight differences with each company. However, a typical pro forma invoice includes these key elements:

Description of Goods

• A complete description of the goods or services being offered, including their quantities, details, and any additional terms or conditions.

Estimated Costs

• An estimate of the expenses for each good or service, taking into account unit pricing, taxes, shipping charges, and any applicable rebates or special offers.

Contact Information

• Contact details for the buyer and the vendor, such as names, addresses, phone numbers, and email addresses.

Validity Period

• Details of the pro forma invoice's validity term, showing the window of opportunity for the buyer to accept the offer.

Terms and Conditions

• Detailed terms and conditions related to the transaction, such as payment guidelines, delivery dates, and any applicable warranties or guarantees, may also be included in the invoice.

When to Use a Pro Forma Invoice

Typically, a pro forma invoice is utilised when a buyer and seller are still in the planning or negotiating stages of a transaction. 

It gives the buyer a rough idea of the costs, enabling them to decide whether the purchase can be afforded and adjust their budget accordingly. 

When dealing with new or potential customers in international trade, pro forma invoices are frequently utilised since they give a comprehensive overview of the anticipated expenses before the final agreement is achieved.

Understanding Commercial Invoices

A commercial invoice serves as a customs declaration for goods being shipped across international boundaries.

It contains in-depth details on the products, their cost, and the deal between the buyer and the seller. This specific document will be used by customs authorities to determine the applicable taxes, levies, and charges on imported products.

If you're interested, click here if you wish to learn more about commercial invoice!

Key Elements of a Commercial Invoice

Here are also a recap of the key elements inside a commercial invoice. These are only some of the more important elements in a commercial invoice, for the full explanation click here to bring yourself there!

When Should I Use a Commercial Invoice?

Typically a buyer will receive the commercial invoice beside the goods once the transaction is complete. 

A commercial invoice functions as a contract and proof of sale between the seller and the buyer. It outlines the terms of the sale, including the quantity and description of the goods, the payment schedule, and other crucial details. 

For accounting purposes, commercial invoices are essential since they allow for proper financial reporting and tax compliance. 

Additionally, when items are delivered overseas, Commercial Invoices are a necessity for customs clearance.

What are the differences Between Pro Forma and Commercial Invoices?

While both of these documents are a form of invoice and share similar qualities, they have several distinctive features.

To summarize everything, here are the major differences between these two invoices.

Two Invoices - Similar, yet Different

It's safe to say that both invoices have similar details such as buyer and seller information, the contents of the shipment, their price, terms of sale, insurance costs, country of origin, and the Harmonised System (HS) codes.

However, we hope that you understand the differences between pro forma invoices and commercial invoices after reading this article.

Understanding the differences maybe crucial when it comes to shipping your products overseas. This is especially important as customs authorities from all around the country typically use invoices to determine whether the goods in question may be exported or imported - for instance, in the case of restricted goods. 

So, to wrap things up, commercial invoices record completed transactions and serve as official documents for payment. On the other hand, pro forma invoices give estimations and introductory data to potential customers.