In business, one of the common questions is the difference between a commercial and pro forma invoice.
After agreeing to the terms of the contract of a sale, the buyer issues a purchase order. This is also called the Letter of Credit. However, before this process, the seller sends a pro forma invoice to the buyer. This invoice mentions the complete details of the agreement of the sale. Therefore, it should be noted the purchase order or the letter of credit is opened only on the basis of the terms listed in the pro forma invoice sent by the seller. Therefore, this document is more like a commitment by the seller to the buyer agreeing to sell the goods as agreed by both in person, email, fax, or over a phone call.
The pro forma invoice can, therefore, also be treated as a confirmed purchase order even though the purchase order will still need to be issued by the buyer. The pro forma invoice is issued before the actual sales take place.
When the pro forma invoice is received on the buyer’s end, the buyer then sends a purchase order. This purchase order is as per the agreed date of shipment that the seller has arranged to ship the goods. At this point, the seller issues a commercial invoice.
From this time onwards, the commercial invoice becomes the prime document of sales in the business. The invoice lists the accounts receivable for the seller and the amount to be paid for the buyer. While the content of both the pro forma invoice and the commercial invoice remain the same, it is the order that makes the difference. The pro forma invoice is issued before the sale takes place.
In some countries, the pro forma invoice is accepted in lieu of the commercial invoice.