Have you dealt with cross-border transactions? Then you might know that invoicing them can be a tough task. Luckily you can use online invoicing software to manage a company’s accounting easily and create a simple proforma invoice. But, what exactly is the proforma invoice, and what makes it different from a commercial one? Not knowing the difference can often lead to issues in custom clearance and closing the transaction.
Well, a proforma invoice acts like an agreement to let the customers know what they can expect. It is an estimate of transport charges and applicable taxes. Proforma invoices can help customers decide if or not they need to order. In addition, they are used by several industries to expedite the internal purchase approval process.
At the same time, commercial invoices let custom authorities determine tax and duties for shipment and check if all requirements are being met; this helps prevent any delays in the delivery.
Proforma Vs. Commercial Invoice
A proforma invoice can be considered as a speculation of the cost of the order before it is completed. Therefore, they are mostly used for import and export processes when the buyer and seller have never worked before.
A commercial invoice denotes a real situation and shows quantities for what has actually been sold and purchased. While the docum ent looks the same, a proforma invoice is just a guess, and it is unlikely that the vendor will use it. However, commercial invoices are the final documents that are sent for billing purposes.
Luckily, the best accounting software for small businesses and online invoicing software lets you make simple proforma invoices easily, automate processes and build good customer relations.
Purpose of Pro Forma and Commercial Invoices
On the other hand, good commercial invoices let you boost customer relations and know what you can expect. The best online accounting software for small businesses and online invoicing software offers several customization options to make your invoice stand out and get access to faster payments.
Uses of Pro Forma and Commercial Invoices
When it becomes difficult to predict the actual price, using a proforma invoice can be the best option. Sending it will give a general idea of the charges. Besides, it can be used as an opportunity to discuss variables that reflect the final invoice amount and issues that may come up while fulfilling an order.
Some of these invoices give variance parameters and tell how much they can differ from the actual invoice amount. It can be handy for importers who wish to get their goods to get a clear custom signal at the port.
Whereas commercial invoices are a final statement and reflect the entirety of services provided when a project is completed. Your customers will use it to pay the bill and it can be saved for later for tax purposes.
Format of Pro Forma and Commercial Invoices
While both invoices more or less look the same, they should be clearly labeled, which is a proforma invoice and which is the commercial one. Sending a proforma invoice cannot be the grounds of demanding payment as customers are liable to pay you only when the work is done, and you send them the final invoice.
Accounting of Pro Forma and Commercial Invoices
Proforma invoices are extremely useful for budgeting and will give you an idea of the due amount and when you can expect payments. Similarly, commercial invoices are necessary for paying bills and keeping your expenses in check. You will need to store them and keep them as a future reference in case of an audit.
Wrapping Up
This was all about how proforma and commercial invoices can help you address different aspects of business transactions and receive payments faster. The best accounting software for small businesses and online invoicing software can help you streamline all your finances and stay on top of customer demands.
In some cases, clients can make an advance payment using a proforma invoice. Once you deliver the services, you can settle your dues to avoid any misunderstandings in the future and duplication of payments.
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