Both purchase order and proforma invoice are commercial documents that are used in international transactions. Most individuals get confused about the use of these two documents. If you’re one of them, then this post is for you. Keep reading to learn how purchase orders and Proforma Invoice are different from each other!
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Differences Between Proforma Invoice and Purchase Order
Here are the points of differences between the Purchase Order and Proforma Invoice :
1. Definition
Proforma Invoice: A proforma invoice is a document involved in international trade, which is issued by the exporter in order to conform to the terms and conditions imposed on the goods or services to the supplier in a written format.
Purchase Order: A purchase order is another commercial document involved in international trade that is issued by the importer in order to authorize the transaction.
2. Issuers
A proforma invoice is issued by the exporter to the importer as a written proof of agreement on the terms and conditions. On the other hand, a purchase order is generated by an importer to seek the attention of the exporter.
3. Delivery Terms
Proforma Invoice: Generally, the CIF, CIP, CPT and CFR delivery terms are more likely to need a proforma invoice instead of a purchase order. This is because these incoterms signify that the sellers are required to arrange and pay the main carriage charges.
Purchase Order: Under the delivery terms like FCA, EXW and FOB, importers can issue a Purchase Order instead of a proforma invoice because the main carriage is arranged and paid by the importers.
4. Business Status
Proforma Invoice: First-time orders always demand a proforma invoice more than a PO because the importers may not have the complete details of the transaction including the details of the shipment, which is required to generate a purchase order.
Purchase Order: If importer and exporter have involved in a good business relationship, meaning regular shipments are made from the exporter to importer, then a purchase order is used more than the proforma invoice.
5. Information Needed
Proforma Invoice: A proforma invoice is relatively easy and simple and it doesn’t require much details. This is the main reason why first-time importers prefer generating it when they don’t have a lot of information about the exporter.
A proforma invoice requires the following information :
- Complete Customer Details (The details of your company)
- Supplier Details (Details of the exporter)
- Port of discharge
- Delivery address
- Product details(type, quantity, weight, etc)
- Unit price
- Banking information
Purchase Order: A Purchase Order requires more details as compared to the Proforma Invoice. It should include everything in detail such as a detailed description of products including their name, color, type, size, material, etc. Further, other details such as product dimensions, designs, and material documentation is also required in a purchase order.
Here is what you’ll need to include in a purchase order :
- Name of Product
- Colors
- Materials
- Applicable Standards
- File Attachments
- Quantity
Apart from product information, a purchase order also required the following information :
- Full details of your company
- Contact person (Name, Contact info)
- Purchase Order Number
- Full details of the Supplier
- Delivery Address
- Incoterms (for example: FOB)
- Requested delivery time
In addition, you can also include the unit price you’re expecting. However, note that the price will not be finalised until the supplier issues their proforma Invoice. But it’s still a good practice because it signals the supplier that you’ll not accept the products if the price goes beyond your expectations. In other words, it helps in negotiating with the supplier indirectly.
So, these are the five main differences between a Purchase Order and a Proforma Invoice.