Invoices are more than just receipts. We often think of invoices as part of the transaction process and as proof of the amount received or goods/services delivered. Well, that is true, but not entirely. There are various types of invoices based on different businesses.
For example, the invoice for a construction business will be different from the invoice used in a bakery business. So, as you can see, this is a vast sector, and each business has a different goal and, hence, a different type of invoice.
There are various types of Invoices based on different business needs. In this blog, we will differentiate two major invoices: Proforma invoice and Commercial invoice.
Let’s dive straight in.
What is a Pro forma Invoice?
A proforma invoice is a preliminary bill or estimated invoice sent by a seller to a buyer before the actual sale takes place. It provides detailed information about the goods or services being offered, including their price, quantity, and other relevant terms. However, unlike a commercial invoice, a proforma invoice is not legally binding and does not demand payment.
Purpose of a Proforma Invoice
A proforma invoice is primarily used for the following reasons:
- Quotation & Price Estimate – It gives the buyer a clear idea of the cost before committing to the purchase.
- Customs Pre-Approval – Some countries require a proforma invoice for import approval or to determine duties and taxes before shipment.
- Securing Financing – Buyers may use a proforma invoice to arrange funds or secure loans.
- Supplier-Buyer Agreement – It helps both parties clarify terms before finalizing the deal, reducing misunderstandings.
When is a Proforma Invoice Issued?
A seller typically issues a proforma invoice before finalizing an order. This happens in scenarios such as:
- A potential buyer requests a price estimate for goods.
- The buyer needs an invoice for internal approval before making a purchase.
- The seller wants to provide clarity on product pricing, shipping costs, and other charges before proceeding.
Key Details in a Pro Forma Invoice
While a proforma invoice is not a final document, it still contains essential details similar to a commercial invoice, including:
- Seller and buyer details (name, address, contact information)
- Invoice number and date of issue
- Description of goods or services (type, quantity, unit price)
- Estimated total price
- Shipping terms (Incoterms, freight charges, estimated delivery time)
- Payment terms (e.g., advance payment, bank transfer)
- The validity period of the proforma invoice
Is a Proforma Invoice Legally Binding?
No, a proforma invoice is not a legally binding document. It does not serve as a demand for payment, nor can it be used for customs clearance. Instead, it acts as a preliminary agreement that outlines the terms of the sale before the official commercial invoice is issued.
What is a Commercial Invoice?
A commercial invoice is a legally binding document issued by a seller to a buyer after an order has been confirmed and shipped. It serves as a formal request for payment and provides detailed information about the transaction, including product details, pricing, and shipping terms. The commercial invoice is a key document for customs clearance, as it helps authorities assess import duties and taxes.
Purpose of a Commercial Invoice
A commercial invoice is used for:
- Official Record of the Sale – It serves as a legal document confirming that a transaction has taken place.
- Customs Clearance – It is required by customs authorities to assess and process import/export duties and taxes.
- Payment Processing, Request Payment – It acts as a request for payment from the buyer, specifying due dates and terms.
- Shipping & Logistics – It provides logistics companies with the necessary details for handling and delivering the goods. It acts as a primary shipping document.
When is a Commercial Invoice Issued?
A commercial invoice is typically issued after the order has been finalized and the goods are ready to be shipped. This happens when:
- The buyer confirms the order and agrees to the final terms.
- The seller ships the goods or provides the services.
- The invoice is required for customs clearance or payment processing.
Key Details in a Commercial Invoice
A commercial invoice contains crucial information that ensures smooth processing of payments and shipments. Common details include:
- Seller & Buyer Information – Name, address, and contact details of both parties.
- Invoice Number & Date – Unique invoice number and the date of issuance.
- Description of Goods or Services – Details of the items sold, including quantity, unit price, and total cost.
- HS Code (Harmonized System Code) – A standardized code for classifying traded products.
- Total Invoice Amount – The total cost, including taxes, discounts, and additional charges.
- Currency – The currency in which the transaction is made (e.g., USD, EUR).
- Incoterms (Shipping Terms) – Terms of delivery, such as FOB (Free on Board) or CIF (Cost, Insurance, and Freight).
- Payment Terms – Due date, payment method (bank transfer, letter of credit, etc.), and conditions.
- Declaration & Signature – A declaration that the details are accurate, often signed by the seller.
Legal & Financial Significance of a Commercial Invoice
A commercial invoice has legal and financial implications, making it an essential document in international trade:
- Legally Binding – It acts as a proof of sale and can be enforced in case of disputes.
- Mandatory for Customs – Customs authorities require a commercial invoice to calculate duties and approve shipments.
- Essential for Payment Processing – Buyers use the invoice for payment authorization and record-keeping.
Commercial vs Pro Forma Invoice: Unlike a proforma invoice, which is just a preliminary document, a commercial invoice is a final invoice and enforceable.
Proforma Invoice vs Commercial Invoice: Major Differences
Below is a detailed comparison between Proforma and Commercial Invoices in 12 crucial aspects:
| Aspect | Proforma Invoice | Commercial Invoice |
|---|---|---|
| Purpose | Provides an estimated cost and details of goods before a sale is finalized. | Serves as a legally binding request for payment after a sale is completed. |
| Legally Binding? | No, it is a preliminary document for informational purposes only. | Yes, it is a formal sales document used for legal and financial purposes. |
| Payment Obligation | No, it does not demand payment from the buyer. | Yes, the buyer is required to pay as per agreed terms. |
| When Issued? | Before the order is confirmed, as a price quotation. | After the order is confirmed and goods are ready for shipment. |
| Use in Customs Clearance | Not valid for customs clearance; only used for pre-approval in some cases. | Required for customs clearance to calculate duties, tariffs, and taxes. |
| Details Included | Estimated prices, quantity, product descriptions, and tentative terms. | Final transaction details, including total price, tax, shipping, and payment terms. |
| Invoice Number | Invoice number, as it is not a final document. | Always has a unique invoice number for record-keeping and tracking. |
| Modification Allowed? | Yes, details can be adjusted before finalizing the order. | No, once issued, modifications require a credit note or revised invoice. |
| Validity | Usually valid for a limited period as a quotation. | Permanent and valid as a proof of sale. |
| Impact on Accounting | Not recorded in financial accounts, as it does not represent an actual sale. | Recorded in financial books as revenue and accounts receivable. |
| Conversion to Invoice | Can be converted into a commercial invoice upon confirmation. | Cannot be converted; it is already the final sale document. |
| Purpose in Business Transactions | Helps in negotiation, securing financing, and order approval. | Used for taxation, payment collection, and financial documentation. |
The difference between proforma invoice and commercial invoice suggests that proforma invoices are created before the sale is finalized, whereas commercial invoices are created after the sale is completed.
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How to Generate a Proforma Invoice Online?
Creating a proforma invoice online has never been easier, thanks to digital invoicing software and cloud-based applications. These tools help businesses streamline the invoicing process, ensuring accuracy and efficiency.
Steps to Create a Proforma Invoice Online
To generate a proforma invoice online, follow these steps:
1. Choose an Online Invoicing Software
There are various invoicing software options available, such as:
- Moon Invoice
- QuickBooks
- Zoho Invoice
- FreshBooks
- Wave
Each platform offers different features, such as customization, automation, and easy invoice conversion.
2. Sign Up & Set Up Your Business Profile
Once you’ve chosen your invoicing software:
- Create an account (some platforms offer free trials, like Moon Invoice’s 7-day free trial).
- Enter your business details (company name, address, contact information, logo).
- Configure settings such as tax rates, currency, and payment terms.
3. Select the “Proforma Invoice” Template
Most invoicing software provides pre-designed invoice templates. Choose a proforma invoice template and customize it with your branding.
4. Enter Invoice Details
Include the necessary details in your proforma invoice, such as:
- Seller and buyer information
- Invoice number and date
- Description of goods/services
- Estimated total price
- Shipping details (if applicable)
- Payment terms and validity period
5. Preview & Save the Invoice
Before finalizing, preview the invoice to ensure all details are correct. You can usually save, download (PDF), or email it directly to your client from the software.
6. Convert the Proforma Invoice into a Commercial Invoice
One of the biggest advantages of using invoicing software is the ability to convert a proforma invoice into a commercial invoice seamlessly. With platforms like Moon Invoice, businesses can:
- Duplicate the proforma invoice
- Make necessary modifications (e.g., updating the invoice number, adding final shipping costs)
- Convert it into a legally binding commercial invoice in just a few clicks
Why Use Online Invoice Software Like Moon Invoice?
Using Moon Invoice or similar online tools offers several advantages:
- Saves time – No manual formatting; automated calculations
- Ensures accuracy – Reduces errors and miscalculations
- Customization – Add branding, logos, and specific terms
- Cloud storage – Access invoices anytime, from any device
- Automation – Convert quotes to invoices, send reminders, and track payments
By using Moon Invoice, small businesses can generate unlimited proforma invoices and manage invoicing efficiently.
Want to experience the benefits yourself? Take advantage of Moon Invoice’s free trial and start creating professional invoices today!
Similarities Between a Proforma Invoice and a Commercial Invoice
Although pro forma invoices and commercial invoices serve different purposes, they share several similarities in structure and content. Both documents provide essential details about the transaction, including the seller and buyer information, product descriptions, quantity, unit price, total cost, and shipping terms. They also outline payment terms and currency to ensure clarity between both parties.
Invoicing software can generate both pro forma and commercial invoices, making it easier for businesses to streamline the payment process, global trade, etc. While a proforma invoice is a preliminary estimate, and a commercial invoice is legally binding, both help facilitate smooth international trade and financial documentation.
Pro Forma Invoice or Commercial Invoice? Which invoice are you selecting?
Moon Invoice offers over 20+ types of invoices, depending on the business requirement.
Wrapping Up!
Whether you need a Proforma Invoice—which is only an estimate—or a legally binding Commercial Invoice, using the right invoicing software is essential. With Moon Invoice, you can generate, customize, and convert invoices effortlessly, ensuring smooth transactions for both your bank and import broker.
Simplify your invoicing process with automated calculations, compliance-ready templates, and seamless invoice management.
Try Moon Invoice today with a free trial and experience hassle-free invoicing for all your business needs!
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
