Incoterms & trade contracts PI

Proforma invoice

A preliminary invoice issued by the seller before shipment, listing the product, quantity, unit price, Incoterm, payment terms, delivery time and bank details. Buyers use it to open a letter of credit, pay an advance or apply for import licences or foreign-exchange allocation. It is not a tax invoice; once countersigned by the buyer it can serve as the contract in simple deals, but larger transactions deserve a full sales contract.

Related terms

Purchase order PO

The formal order a buyer sends to a supplier stating the product, specification, quantity, price, delivery date, delivery term and payment conditions. Once the seller confirms it in writing (order confirmation), a binding contract exists between the parties. The PO number is quoted on invoices, delivery notes and shipping documents and makes reconciliation easier.

Sales contract

The core document setting out the parties’ rights and obligations in an international raw material sale. It should cover the product and specification, quantity and tolerance, price and currency, Incoterm and named place, shipment period, payment method, quality and quantity determination (inspection), insurance, force majeure, remedies for breach, governing law and dispute resolution. Where the parties’ countries allow it, the UN Convention on Contracts for the International Sale of Goods (CISG) applies unless expressly excluded.

Commercial invoice

The final sales document issued by the seller after shipment, stating the description of goods, HS code, quantity, unit and total price, Incoterm, payment terms, origin and the parties’ details. It is the basis for customs valuation, duties and letter-of-credit payment; under a credit the description of goods must match the credit exactly. Unlike a proforma invoice, it records the actual sale and the amount due.

Explained in the trade handbook

Trade handbook