What are the differences between proforma invoice and purchase order?

Both proforma invoice and purchase order are commercial documents, which are used in international trade transactions.

In my previous articles, I have explained these two important documents in detail. If you want to learn more about them, please just click the links below.

  • What is a proforma invoice? How does it work?: In international trade, a proforma invoice can be defined as a type of commercial document, which is issued by the exporter in order to submit the terms and conditions of the sale in a written format to the importer's approval at the beginning of the transaction.

purchase order and proforma invoice differences in export and import business

Today, I would like to outline the differences between the proforma invoice and purchase order.

Export Proforma Invoice Templates in Excel: Ex Works, FOB, CIF

Proforma invoice is one of the most frequently generated trade document in international trade.

A proforma invoice is issued by an exporter at the beginning of an export transaction. It certifies the commitment of the exporter to sell specified goods for a certain price and at certain terms in a formal manner.

Once the proforma invoice is received by the importer, the terms and conditions stated on the proforma invoice should be checked.

By sending back a signed proforma invoice to the exporter, importer confirms the order.

On one of my previous articles, I have already explained "What is a proforma invoice, how does it work and how to prepare a proforma invoice." If you need further information regarding this subject, please read my previous article, before reading further this page.

Today, I would like to share export proforma invoice templates with you in excel format, completely free of charge for download.

Proforma invoice templates, that you can download from this page, are prepared according to most common Incoterms: Ex works, FOB and CIF.

What is a proforma invoice? How does it work?

Proforma invoice can be defined as a compact form of an international sales contract.

In other words, it is a lite version of the international sales contract.

Proforma invoice is expected to be issued by the seller, also known as exporter in international trade, at the beginning of the transactions.

Contents of the proforma invoice may change from industry to industry, customer to customer or country to country. There is no fix and single format available.

What is a proforma invoice? | How does a proforma invoice work?

But in general terms, by preparing a proforma invoice; exporter mainly defines and conveys following information to the importer:
  • the price of the goods
  • description of goods
  • quantity and quality of the goods 
  • packaging
  • delivery terms 
  • delivery period 
  • modes of transport   
  • payment method

How to show an advance payment discount on a commercial invoice?

Advance payment in international trade defined as a payment that is made ahead of shipment take place, such as importers are paying for whole or part of the goods value before they actually receive them. 

Sometimes exporters and importers agree on an advance payments, which will be taking place ahead of the shipments. 

These kinds of advance payments should be demanded via proforma invoices and the advance payment amount must be shown as a discount on the commercial invoices.

On this page I will try to explain how to show an advance payment discount on a commercial invoice.

Mixed Payments in International Trade

Mixed payments work as a kind of financial security tool for exporters in international trade transactions.

Exporters demand a portion of the transaction amount from importers in advance of the shipments, such as 30% of the total amount. 

Remaining amount could be paid against CAD, letter of credit or sending copies of shipping documents by fax or e-mail to the importer.

Today I would like to explain mixed payments as used in international trade transactions.

Titles of Invoices: Commercial Invoice, Tax Invoice, Proforma Invoice

Invoice titles could create confusion among exporters and importers in some occasions. 

The biggest problem in regards to titles of invoices occurs when the payment term is letter of credit.

"Invoice" and "commercial invoice" are the main titles of invoices in circulation in international trade. 

Tax invoice and proforma invoice are another two common invoice titles.

Today I would like to explain the differences between various invoice titles.

What does "as per beneficiary's proforma invoice" mean in a letter of credit?

Almost all letters of credit, at least the ones that I have encountered with, contain a phrase under field 45-A Description of Goods, giving express reference to a proforma invoice.

Some examples are:
  • Commercial invoice must bear beneficiary's certification that goods shipped are in accordance with proforma invoice nr. 1910201100
  • Commercial invoice must be bearing this clause: ''We certify that invoices are in all respects correct and true both with regard  to the price and description of goods referred to therein and as per proforma invoice no.011 dated 09/06/2014."
  • Commercial invoice must state that as per beneficiary's proforma invoice ref no:AA130522 dd:04.07.2014.
  • As per applicant's purchase order no. d14080 dtd 17.12.14.

But what does an express reference to a proforma invoice mean in a letter of credit? 

How to present a correct invoice in such a situation?

Is it possible to make couple of shipments under the same proforma invoice?

Proforma invoice used as a simplified form of a sales contract in today's international business transactions. 

Many companies do not waste their times to write down a detailed sales contract, but instead they send a single page proforma invoice to their buyers.

In some occasions, a proforma invoice may cover an order which will be shipped not in once but under several shipments. 

This action is defined as partial shipment.

Partial shipment should be allowed by the sales contract or a proforma invoice under normal conditions. 

It is worth mentioning that, letter of credit rules also allow partial shipments as well.

But in some special situations, importers may prohibit partial shipments. In such a case, partial shipment should not be allowed under the sales contract or the letter of credit conditions.

What are the differences between proforma invoice and commercial invoice?

Proforma invoice is a written proposal, issued by the exporter, which contains the terms and conditions of the foreign trade transaction. 

Proforma invoice is issued at the beginning of the transaction and it would not be accepted as a final document. 

It can be amended even after it is signed by both parties.

Commercial invoice also states the details of the transaction with one exception. 

Commercial invoice issued in order to complete the export and import operation in a foreign trade transaction, as a result its contents are final and are not subject to any further change or amendment.

PS: All corrections made on the face of the commercial invoice have to be authenticated by the issuer.

Today I would like to mention the differences between a proforma invoice and a commercial invoice.