Proforma Invoice vs Commercial Invoice: Key Differences

Misusing proforma and commercial invoices can have similar consequences. While both are essential in international trade, using a proforma invoice instead of a commercial invoice for an export shipment can cause customs delays or rejections, leading to financial losses and supply chain disruptions. Confusing these invoices can also distort financial records, inflate revenues, and mislead decision-makers.

Understanding the difference between proforma and commercial invoices is crucial for compliance and financial accuracy. In this article, we’ll explain their differences, similarities, and how to standardize them to ensure they always contain the right details and serve the right purpose. 

What is a Proforma Invoice? 

Here’s Bianca Gracias, a lawyer, sharing her frustration over a supplier demanding payment on a proforma invoice with VAT:

You may think, “What’s Bianca’s problem?”

Bianca points out that proforma invoices are not meant for VAT charges or to demand any payment. Such mistakes signal inefficiency and expose businesses to legal and financial risks.

A proforma invoice previews what the final invoice will look like before goods or services are delivered. Think of it like a dress on a mannequin; it gives the buyer an idea of what they’re getting and how much it’ll cost. This way, any discrepancies can be sorted out, and renegotiations or modifications can happen before the invoice is issued.

Proforma invoices are not legally binding and can’t be used to demand payment. That means the seller doesn’t record it as money owed (accounts receivable), and the buyer doesn’t record it as money payable. In short, a proforma invoice has no accounting impact, it’s simply a way to ensure everything is in order before moving forward.

Why then should you use a proforma invoice?

• Avoid Surprises & Disputes: Helps buyers confirm details and request changes before receiving the final invoice
• Speeds Up Payment Approvals: In big companies where payments take forever to get approved, a proforma invoice helps fast-track the process so that once the real invoice arrives, things move faster
• Key for Import/Export Transaction: Often needed in international trade for customs pre-clearance, trade financing, and confirming order details

What should a proforma invoice include?

• A description of the goods/services (quantity, price, weight, etc.)
• Seller’s name and address
• Applicable taxes, commissions, and total cost
• Payment terms, delivery terms, invoice date, and validity period

Here’s a sample of a proforma invoice:

A common mistake with proforma invoices is neglecting key terms and conditions like payment deadlines, accepted payment methods, and validity periods. For instance, if you don’t specify that the proforma invoice is only valid for 30 days, the buyer might assume the quoted price is fixed indefinitely.

Also, ensure your final invoice matches the proforma invoice. You don’t want to tell customers one thing and then deliver something different. This breaches trust and can cause disputes, so always double-check to prevent discrepancies.

A well-prepared proforma invoice ensures a smooth transaction and creates hassle-free payments and deliveries.

What is a Commercial Invoice? 

A commercial invoice is issued after providing goods or services to request payment. Unlike a proforma invoice, which works for domestic and international transactions, a commercial invoice is required only for cross-border sales. It helps with customs clearance and allows the buyer’s country to determine duties and taxes. 

Plus, it’s legally binding and essential for keeping accurate accounting records.

Commercial invoices typically contain:

• Item Descriptions: Clear, detailed explanation of the goods or services provided. For international shipments, this helps customs agents classify the items correctly
• Quantity and Unit Price: Specifies the number of units and the price per unit
• Total Value: The full amount payable, often used to calculate duties and taxes
• Seller and Buyer Details: Names, addresses, and contact information of both parties
• Terms of Sale (Incoterms): Defines who is responsible for shipping, insurance, and customs duties
• Payment Terms: Specifies when and how payment should be made
• Tax Information: VAT or other applicable tax details
• Shipment Details: Weight, dimensions, and mode of transport (air, sea, land)

Here’s a sample of a commercial Invoice:

Commercial invoices finalize sales, and hence, are sometimes called the final invoice. However, that doesn’t mean it can’t be amended. Discrepancies between invoice details and shipped goods happen frequently. If the invoice hasn't been used for customs clearance, you can notify the relevant parties and issue a revised version with the correct details.

However, amending the invoice can be tedious and may incur fines once submitted to customs. To avoid complications, ensure your invoice is detailed and accurate before submission. 

PS: Before using any template, check whether the buyer’s country has a preferred format or mandatory fields.

Proforma vs Commercial Invoice: Differences at a Glance

Here’s a summary of the differences between proforma and commercial invoice: 

How to Standardize and Automate Proforma and Commercial Invoices to Avoid Mistakes

Ever had to double-check an invoice because it wasn’t clear which type it was? When your proforma and commercial invoices don’t follow a consistent format, it’s easy for your team and customers to mix them up and use them incorrectly. Important details can also slip through the cracks. 

A standardized template with clear labels and required fields ensures accuracy and makes invoices easy to recognize and use. And if you take it a step further by automating the template filling, you’ll reduce human error, especially when juggling multiple transactions.

So, how do you standardize and automate your invoice creation?

Use a document automation tool like Docupilot. Here's how to get started:

Sign up for Docupilot for free. Once you're in the dashboard, click on "Create Template."

Docupilot offers several ways to create a template. You can either choose from the template library, use the AI template generator by describing the type of invoice you want, or simply upload your existing invoice. For example, if we want to create a commercial invoice template, we can simply upload the template we have above:

To upload your template, just click on the invoice format and drag and drop the file.

Docupilot makes auto-filling easy by converting variable fields like names, date, price into tokens. With other document formats, you have to add the tokens yourself (pretty easy too). But you can skip that by uploading your template in PDF. Docupilot will automatically detect and extract the fields.

To fill in the fields, simply click on "Create" from the top menu. In the left bar, you'll find the various options to populate your invoice. If you want to generate a single invoice, use the capture link to open the data form and fill it out.

But since our goal is to automate bulk invoice generation, use the Zapier or Make integrations.

This way, when you upload your transaction data like name, date, and amount into databases like Google Sheets or accounting software like QuickBooks, Docupilot will automatically populate your templates with the existing data and generate an invoice. This saves you time and reduces the chances of errors that could arise from manually filling out bulk invoices.

Note: You can’t edit PDF templates in Docupilot, so ensure they’re ready before uploading. If you need to make any customizations, use PDFescape, a free and user-friendly tool.

Ensure Error-Free Proforma and Commercial With Docupilot

Proforma and commercial invoices play a role in international transactions but are far from interchangeable. The main difference is that a proforma invoice comes before the sale to ensure everything’s in order, while a commercial invoice requests payment once the deal’s done.

Mixing them up could lead to customs delays, confusion between buyer and seller, and financial misreporting.

The best way to avoid these issues? Use a standardized template and automate the process with a tool like Docupilot. It cuts down on manual errors and speeds up the invoice generation process, especially if you’re dealing with many invoices.

Want to give Docupilot a try? Sign up for a 30-day free trial and see how it can make invoicing a breeze!