Proforma Invoice vs Commercial Invoice: What’s The Difference?

If you’re confused about the differences between proforma invoices and commercial invoices, you’re not alone.

Although these documents can look similar, they serve different purposes. If you’re involved in international trade, then understanding how they’re used can help you make sure your shipment into or out of Canada goes smoothly.

Read on for more about:

• Proforma invoice
• Commercial invoice
• Customs invoice
• Who is the consignee

How can you get paid for your international invoice?

Before we talk about the different types of invoice you’ll come across when importing and exporting, let’s touch on how to pay and get paid when working across borders.

As a business owner, you’ll want to cut down the costs of sending and receiving money from overseas, to make it easier to pay your international suppliers, and work with customers based abroad. One great way to do that is with a multi-currency account like the Wise borderless account.

Borderless accounts are available for both personal and business customers, and let you hold your money in dozens of different currencies all in the same place. You can pay your international suppliers easily, making fast and secure overseas transfers online in a broad range of currencies. All currency conversion is done using the same exchange rate you’ll find on Google, the real mid-market exchange rate, with just a small transparent fee to pay. This typically works out much cheaper than using a regular bank, and the fees can be up to 19x less than using an alternative like PayPal.

You can also receive payments like a local in euros and British pounds, as well as US, Australian and New Zealand dollars, making it easy to sell to customers in these regions.

Now, back to those invoices.

What is a proforma invoice?

A proforma invoice is produced by a seller or supplier before goods are shipped to a buyer. The proforma models out the agreed sale, including the quantities and prices of goods agreed, to give your buyer an estimate of the costs. It also allows the buyer to check the arrangements before proceeding.

A proforma invoice is an ideal way to let the buyer know what to expect. If you’re new to exporting you can find proforma invoice templates online to help guide you in creating your own¹.

Which information should be on a proforma invoice?

The proforma invoice should detail all relevant details of the proposed sale. You should include information such as (but not necessarily limited too)²:

• Name, address and contact details of your company
• Name and address of purchaser
• Description of each item, nr of items, and total amount per item
• Tax amounts (but make sure to specify that it’s not a VAT invoice)
• Total amount
• Currency of settlement, as well as any relevant conditions of sale or terms of payment
• Country of origin and shipment details, including the mode of transport and place of arrival

What is a commercial invoice?

A commercial invoice is issued when the goods are shipped, and confirms the exact details of the sale (the exact payment details, for example). This document is then used for customs checks, along with other shipping documents, and for the buyer to make payment.

If you’re new to exporting goods from Canada, it makes sense to use an invoice template, which you can find online, or have a customs broker or other professional help you create your first invoices. The exact information you include may vary according to the type of goods, and the details of the shipment including the destination country. Mistakes can cause a holdup at customs, so investing in professional support might make life easier overall.

Which information should be on a commercial invoice?

The information included on a commercial invoice will be broadly the same as that on a proforma invoice. The main difference here is that this document now confirms the details of the final shipment, and should reflect any changes that have been made to the order before the goods are sent. For example, if the supplier does not have enough stock to meet the full order, or if the price of goods has changed since the proforma invoice was created, this will be shown in the commercial invoice.

The commercial invoice is used to check goods going through customs, and so must be a thorough and complete record of the items, including their type, purpose and price. Border authorities will then use this information to check shipments are safe and legal, and calculate any duty or tax to be paid.

If you’re exporting goods out of Canada and need to provide a commercial invoice for customs, you’ll have to check the exact requirements for this document in the country you’re shipping to.

Who is the consignee on a commercial invoice?

Some invoice templates ask for consignee details as well as the seller and buyer, you'll also need to enter this information on a customs invoice. A consignee is the person who will receive the shipment. This could be the buyer themselves, or an importer acting on behalf of the buyer³.

The consignee is not to be confused with the consignor, as the consignor is the person that ships the goods⁴.

What information should be on a customs invoice for Canada?

If you’re importing goods into Canada you need to make sure you have the correct paperwork to avoid unnecessary delays. Typically you’ll use a commercial invoice, which could be completed by the supplier or importer. If you’re using a customs broker, they may complete this document for you.

If for some reason a commercial invoice is not available, you may be able to present a proforma invoice at customs. This might apply if you’re importing goods or samples but no money is changing hands, for example⁵.

The Canadian border services agency provide a Canada customs invoice template you can use for your shipment⁶. This covers all the information needed to get through customs without issues, and can be a handy resource when you’re starting out importing into Canada. Your commercial and customs invoice can be the same document, provided you provide all the correct information needed for customs on this document⁵.

Invoicing for your business might seem a little tricky at first, but you can make life easier by getting professional guidance from a customs broker, or using one of the many available online invoice templates. And if you’re paying suppliers based overseas, it’s also worth investing a little time to check out ways to cut your international transfer fees. You might find you can save money - and give your profits a boost - by opening a borderless account for business.

Sources used for this article:
1.About proforma invoices
2.Proforma invoice templates
3.Consignees overview - Government of Canada
4.Consignors overview - Government of Canada
5.Customs forms - PCB
6.Canada Customs Invoice - Canada Border Services Agency
*All sources checked on October 21, 2019