Purchase Order vs Pro-forma Invoice

Starting out in merchandising made me immerse myself into a whole new set of business words and documents and the most common thing I am doing every single day of my job is to release Purchase Orders to various merchandise suppliers.

On the other hand there is relative confusion to those who are new in the business the difference of Purchase Order from a Pro-forma Invoice

First let me me explain  when is a pro-forma invoice issued.

Once after agreeing the terms of contract of sale, the buyer has to issue a purchase order or Letter of Credit. Just before this process, the seller has to send a ‘pro-forma invoice’ to buyer, mentioning complete details of agreement of sale. Normally, purchase order or Letter of credit is opened on the basis of this pro-forma invoice sent by the seller. 

So, we can treat pro-forma invoice as a document of commitment to sell the goods to the buyer as per the terms and conditions agreed between both in person, over telephone, by fax, email or any other mode of communication. In other words, we can treat the pro-forma invoice as a ‘confirmed purchase order’ from the seller, although the official purchase order has to be issued by the buyer. The pro-forma invoice is issued before sales takes place. 

Once after receiving pro-forma invoice from the supplier, the buyer sends a purchase order or opens a letter of credit to the supplier.

Here we come to the point of knowing what a Purchase order really is.

Once the seller sends the details of the product(even a sample of an actual merchandise) and after satisfaction of quality, price and terms and conditions the seller sends a pro forma invoice to buyer. Based on such pro forma invoice, buyer release a Purchase order to seller as confirmation of purchase of his goods. Purchase order contains the details of product, quantity, price, payment terms, delivery terms and other terms and conditions of purchase contract as mutually agreed between buyer and seller. Normally purchase order is prepared by buyer on the basis of pro forma invoice sent by seller to buyer. Once after acceptance of purchase order by seller, the purchase contract exists. 

Thus delivery of goods by the seller shall be expected on the date indicated in the Purchase Order, sometimes there are instances where suppliers cannot fully fulfill the quantities indicated in the purchase order that there are still negotiations that can be made verbally.  Most often especially for big companies, delivery of less than 50% of the indicated quantity means rejection of the delivery.  In some instance, a new Purchase Order has to be issued indicating the adjusted quantity that the seller can deliver.

LED Lighting Revolution

We all aim to have a doable market power efficiency that translates into energy saving and cost saving for everyone who is a consumer.  With the rising cost of fuel energy that powers utility companies, every consumer wants to harness products use that will make their monthly electric bill a manageable expense to say the least. The market has always been on the lookout for the best product that delivers highly tangible usage, low wattage and most energy saving functions.  

Fortunately, in recent years, LEDs have become the most popular energy efficiency measure on the market, the rate of adoption has not been easy.  It doesn’t matter whether the existing lighting is incandescent, fluorescent, metal halide or sodium. When improving lighting energy performance LED sources have become the number one efficiency recommendation.  LED lighting has been high on the wider energy efficiency agenda for several years, but right now no other technology change offers the same level of power reduction, whilst maintaining or improving on operational performance.

LED lighting has fast become one of the top sustainability measures taken by businesses and the public sector. Heavily-incentivized renewables may be attracting the attention from policy makers, investors and those keen to make a ‘green’ statement. But in terms of carbon abatement the deployment of LED solutions provides some of the best ratios available when it comes the amount invested per tonne of carbon reduced.

The step-change in more recent years has been the deployment of LED technology to illuminate wide areas and from mounting heights previously thought to be beyond the range of the technology.  Today all sectors, from logistics companies with large warehouses and external spaces to light, through to small offices and retailers, can take advantage of the LED revolution.  The commercial case for investment is strengthening as performance improves, product costs decrease and the relentless rise of energy costs continues.

The best commercial cases are present where operating hours are highest.  Where continuous operation is required payback periods are often close to one year.  However even in office applications where annual hours of operation are 3,000 or more the return on investment can be less than five years - especially where effective controls are deployed.

Lack of awareness is a major factor why aren’t we seeing ubiquitous uptake of this game-changing technology? The inertia around replacing systems which may be providing an adequate function is another - many businesses have the attitude that ‘if it ain’t broke don’t fix it.’  But we find that a key barrier to action is the difficulty end users often with limited technical expertise face when seeking a supplier or partner to provide a solution.

The standard of product provided is important here: not all LEDs are equal in terms of lamp life or lamp quality.  Warranty periods matter as well – but fundamentally you do not want to deal with product failure.

LED performance and reliability has made it indisputably the leading energy efficiency technology on the market. With energy costs constantly rising, alongside the pressure to reduce carbon emissions, we expect the adoption of the technology to continue at a rapid pace. But while many organizations have woken up to the potential with LEDs, a greater awareness of the opportunity, along with improved focus on quality and confidence will help to drive up the rate of implementation and continue driving down carbon emissions.

Calculating chargeable weight under airfreight in import-export

There are several ways to ship your products to your customers abroad and here I want to share how airfreight charges are being computed, so you will know more or less how much you'd be paying for the cargo you will be shipping through airfreight.

How to calculate chargeable weight under airfreight in exports and imports.

Freight charge under air shipment is calculated on the basis of weight of cargo. Commonly a question arises here, whether actual weight or chargeable weight?

In an air shipment, airfreight charge is calculated on the basis of actual weight or chargeable weight, which ever is higher. Then what is Chargeable weight? How to find chargeable weight?

Chargeable weight is an equilibrium point where in actual weight and volume of cargo balance.

Why chargeable weight in airfreight?

Let me explain the importance of chargeable weight in airfreight. Why do air carrier balance weight and volume of cargo?

Let me explain the importance of chargeable weight in simple terms. If a shipper exports cotton, the actual weight of cotton is very low but occupies a good amount of space as a volume. In this case, if airfreight is charges on the basis of actual weight of cargo, the said shipper needs to pay a very nominal airfreight compared to a shipper who exports iron plates. Am I right? Here is the importance of chargeable weight by considering volume of cargo and actual weight of cargo at an equilibrium point.

Calculation of chargeable weight in airfreight.

In order to find chargeable weight of cargo you need to have measurement of package of goods.If the cargo measurement are in centimeters, the total volume of cm3 to be divided with 6000. In other words, if the volume is in cubic meter (CBM), the said volume in M3 to be divided with 0.006. Air carriers charge airfreight on the basis of chargeable weight or actual gross weight which ever is higher.

Let me explain to calculate chargeable weight in simple language to make understand easily. I am going to explain with 3 examples, the method of calculation of airfreight for export shipments.

You have three shipments to be exported separately. Measurement of cargo length, width and height

Shipment 1:

Gross weight =750kgs

Measurement of cargo = 102cm X 98cm X 106cm = 1 box
80cm X 65cm X 103cm = 3 boxes

Total volume = 1059576 +(535600X3) = 2666376 cubic centimeter

Total chargeable weight = 2666376 / 6000 = 444.396kgs

Here in shipment No: 1, the gross weight is 750kgs and chargeable weight is 444.396kgs. Hence, actual gross weight of 750kgs (which is greater) is charged airfreight.

Shipment 2:

Gross weight = 850kgs

Measurement of cargo = 120cm X 160cm X 115cm = 2 boxes
75cm X 130cm X 125cm = 2 boxes

Total volume = 4416000 + 2437500 =6853500 cubic centimeter

Total chargeable weight = 6853500 / 6000 = 1142.25kgs

Here in shipment No:2, the gross weight is 850kgs and chargeable weight is 1142.25kgs. Hence, airfreight is charged on the basis of chargeable weight of 1142.25kgs.

Shipment 3:

Gross weight : 950kgs.

Measurement of cargo = 1 meter X 1.05 meter X 0.85 meter = 2 boxes
0.7 meter X 1.50 meter X 0.60 meter= 3 boxes

Total volume = (0.8925 X 2) + ( 0.63 X 3)
1.785 + 1.89 = 3.675 cubic meter

Total chargeable weight = 3.675 / .006 = 612.50kgs

Here in shipment #3, the gross weight is 950kgs and chargeable weight is 612.50kgs. Hence, airfreight is charged on the basis of actual gross weight of 950kgs which is greater than chargeable weight. Also note, the measurement in shipment 3 is in meter and volume calculation also may be noted.

Importation Basic Computation

I started working for a major retailer in 1997 but it was in 2001 when I first got to deal with importation for another major retailer.  What I primarily have to import are toys, glassware, footwear, apparel, household linens, hardware stuffs.

When I began doing importation, I have totally no idea how to do calculations whatsoever, even for margins but learning on the job was really a real eye-opener, how big profit is being made by retailers especially those who do import goods for sale locally.

Let me share here one of those calculation that may prove useful for new entrepreneurs who wants to venture into overseas importation of goods.  I hope this will be useful for you readers.

Let us first learn the different importation terms:

Less Container Load or better known as LCL shipping is a good way to ship large orders and items that are large or heavy.  LCL shipping is based primarily on the amount of volume with a minimum shipment of one cubic meter.

Calculating volume of cargo is a common subject for all exporters and other shipping related companies. If cargo is Full Container Load (FCL), the freight charge is for full container load basis. But if the cargo is a Less Container Load (LCL), normally a freight forwarder charges freight on the basis of volume of cargo. A freight forwarder charges freight on the basis of CBM.

The method of calculation of volume of cargo under sea LCL shipment

CBM means Cubic Meter. However, the total weight of cargo should not exceed 1 ton. That means, if the cargo weight is above 1000kgs, the volume of cargo is treated on the basis of weight. In short, freight forwarders charges LCL rate on the basis of ‘per CBM’ or per weight of 1000kgs (1 ton) which ever is higher. CBM – cubic meter is calculated by multiplying length, width and height of packages of goods. For example, if the length, height and width of a cargo is 2.3 meters, 1.4meters and 2 meters respectively, the volume of cargo is 2.3 X 1.4 X 2.00 = 6.44 CBM. If you have the measurement in inches or centimeters, first you need to convert in meters and then calculate CBM which will be easier for you. If freight forwarder quote a rate of USD 10.00 per CBM, the rate will be 6.44 CBM X USD 10.00 per CBM = USD 64.40.

If the weight of the said package is 7 tons (7000kgs), the freight on LCL is calculated on the basis of weight. That is, 7 tons X USD 10.00 = USD 70.00. So, weight of 1 ton (1000kgs) is treated as 1cbm. In other words, the LCL freight is calculated on the volume of 1 CBM or weight of 1 ton (1000kgs) which ever is higher. 

Please note that the shape of the crate does not have to be 1 meter by 1 meter, it can be any size it is only the volume that is calculated.

We calculate LCL shipments by taking the item or items that you would like to purchase and calculate their given volumes.  To do this we first take the length, width and depth of each piece and add from 2-10 centimeters to each dimension.  We add the 2-10 cm to the size to allow for packing and framing.  Once we get the total volume of the pieces you are ordering we divide the total volume by 1,000,000.

We get the 1,000,000 figure from the length 100 cm multiplied by width 100 cm multiplied by depth 100 cm.  Take note that there are 100 cm in one meter, thus there are 1,000,000 cm in a cubic meter.

For example:

Item #Box1

Quantity 1

Size 75 x 50 x 90 cm

Let us assume that this item is fragile so it will need very good packing and framing.  To ensure that we are able to pack this very well, we will add 10 cm on to each side of the object.  The new shipping size of this box is now 85 x 60 x 90 cm.

85 x 60 = 5,100

5,100 x 90 = 459,000

459,000 / 1,000,000 = 0.46 or 46%

From this example we know that this box will occupy 46% or about half of a cubic meter.  Since there is a minimum shipping volume of one cubic meter for LCL shipping, there is an extra 54% of a cubic meter that can be used. 

Example 2:

Item #BOX 2 Quantity 2 Size 10 x 40 x 60

Item #BOX 3 Quantity 40 Size 50 x 30 x 20

Item #BOX 4 Quantity 1 Size 75 x 50 x 90 cm

Let us assume these items are all fragile so it will need very good packing and framing,  To ensure that we are able to pack this very well and we will add 10 cm on to each side of the object.  We now have the following shipping sizes.

Item #BOX 5 Quantity 2 Size 20 x 50 x 70	Item #BOX 6 Quantity 40 Size 60 x 40 x 30	Item #BOX 7 Quantity 1 Size 85 x 60 x 100 cm
20 x 50 = 1,000 1,000 x 70 = 70,000 70,000 x 2 =140,000  (2 is the quantity)	60 x 40 = 2,400 2,400 x 30 = 72,000 72,000 x 40 =2,880,000	85 x 60 = 5,100 5,100 x 100 = 510,000 510,000 x 1 =510,000
Now we add the volumes together to get a total shipping volume:140,000 + 2,880,000 + 510,000 140,000 + 2,880,000 + 510,000 = 3,530,000 (this is the total cm) 3,530,000 divided by 1,000,000 (the number of cm cubed in a cubic meter) = 3.53 cubic meters.

If you do not understand these examples don’t worry when ordering all you need to do is give us the items that you would like and the quantities we will do all this for you.

At the beginning of this answer we mention that volume is the primary factor in calculating LCL shipment there are a few other things that affect the way LCL shipping cost are calculated.

1. all order need to be insured, insurance for LCL shipments is calculated at a rate of 3% of the cost of the goods.

2. Document and Export Fees are added to the shipping cost per order not per cubic meter

3. The maximum weight of a cubic meters goods can not exceed 350 Kilograms, if this is the case with your order we need will need to calculate shipping rates by weight not volume.

Good luck to all entrepreneurs who are eyeing to enter the importation business and may you find this educational.