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What is the difference between a pro forma invoice and a trade invoice?

In international trade and invoicing, different documents are necessary for different purposes. Two of the most used invoice types are the trade invoice and the pro forma invoice. This article will explore their definitions, main differences and when they should be used.

Proforma invoice: Unlike the commercial invoice, the proforma invoice is not a binding agreement. Instead, it is a preliminary invoice that gives the buyer an idea of the expected costs of the upcoming transaction. It is often used before the actual delivery or the formal closing of the contract and is intended to provide a preview of the transaction rather than to determine the final sale price.

Commercial invoice:

A commercial invoice is an important document in international trade, which formalizes the sales contract between the seller and the buyer. It contains detailed information about the goods sold, including description, quantity, price, delivery and payment terms and country of origin. For customs clearance, the commercial invoice is necessary and it is also used to determine the customs value of the goods.

Differences between Proforma Invoice and Commercial Invoice:

  • Binding vs. Non-binding: The commercial invoice is a binding agreement while the pro forma invoice is more like an estimate.

  • Usage: The commercial invoice is used for customs clearance and payment, while the proforma invoice is used to provide a preliminary estimate or request advance payment.

  • Validity: The pro forma invoice may have an expiry date, while the trade invoice represents the final deal.

When to use Proforma Invoice and or Trade Invoice:

  • The commercial invoice is used when the goods are ready for shipping and for customs purposes.

  • The proforma invoice is used to provide an estimate, request advance payment, or when full details of the commercial invoice are not available.

Conclusion: Understanding the differences between the commercial invoice and the pro forma invoice is critical to the efficient management of international transactions and to ensure accurate documentation. By using the right invoice type in the right context, companies can avoid confusion and complications in the trading process.

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