What is a Commercial Invoice?

Exporting goods to international clients generally requires standard shipping document specifications during the shipping time.

An essential aspect of this process is the issuance of a commercial invoice.

The commercial invoice differs from a regular sales invoice in that it includes additional information for border crossings, such as the country of origin, the HS code, the freight terms, and other important details.

Learn what is a commercial invoice, what to consider when making one, and examples in this guide.

Commercial Invoice (Meaning & Uses)

So what does a commercial invoice mean? Generally, commercial invoices are the special export document that facilitates the passage of your package through customs. To help the customs authority calculate the right amount of taxes and import duties that should be applied to your shipment, you should prepare your commercial invoice for export properly and accurately. In this way, delays can be avoided.

Aside from that, customs officials can check to see if your package meets all a country’s requirements and, if necessary, pass on that information to the country where the package will be sent (for example, where the recipient’s tax liability will be). Having filled out this invoice correctly increases your chances of receiving your package on time if you complete it correctly. 

Things to Consider When Preparing a Commercial Invoice

It is optional to follow a standard format when creating a commercial invoice, but if you want to have the document have legal value, it must cover specific details.

When creating or filling in a commercial invoice template, whether from scratch or using a premade template, make sure that the document contains all of the following elements:

1. A header with information about the importer and exporters

Every invoice begins with a header containing information about the buyer (importer) and the seller (exporter), whose contact information can be found at the top of the invoice.

Here are the details of the seller’s contact information:

• Name of the business
• Logo of the company
• Street address and landmark
• Contact info
• City + postcode
• The country
• You need a tax identification number based on where you’re located. As an example, European Union (EU) countries use the term VAT (value-added tax), while American citizens get EINs (employer identification numbers) or FTINs (federal tax identification numbers).

Here are the buyer’s details parallel to the seller’s:

• Business or customer’s full name
• Address of the street
• Number of the phone
• Code of postal service
• City
• Country

2. Invoice number and invoice date

To avoid duplicate payments, you should keep the documents well-organized. Every invoice is assigned a unique invoice number (invoice ID). Invoice numbers can be generated in various ways, but the most common method for businesses is the sequential one.

As the name implies, the sequential approach means that every time a new invoice is raised, the invoice in question moves up by one position. If, for instance, your first invoice is 00001, and the next one is 00002, you would begin your process again with 00002.

There is also the need to specify the due date for the payment, which is usually outlined in the proforma invoice or previously agreed with the client.

3. Product and shipping details

Having an itemized list of the products you’re shipping on your commercial invoice is essential.

With the help of this information, the customs department can get a good idea of what the package contains, along with its purchase price.

Include the following information: 

• The name of the product and a brief description of what it does
• Code of the item (SKU number)
• To calculate the net weight of a product, you need to subtract the added weight due to its packaging. For instance, a large box of trousers is calculated by adding up the box’s weight plus the trousers’ weight, and that weight is excluded from the net weight when the box is shipped.
• Each item’s totals should be added together to determine the invoice subtotal.
• This is commonly referred to as quantity, or simply Qty for short.
• There is a difference between the gross weight of the product and the weight of its packaging. The tare weight (the weight of the box or other packaging) is considered in this case.
• Each product line’s total price.
• Price per unit. Value is usually used to describe this concept.

 Inaccuracies could result in a fine, so be sure to fill in this information correctly.

4. Harmonized system code

 Including a harmonized system (HS) code on every product you ship is mandatory.

According to the HS code, merchandise is categorized by type, function, and nature. It allows customs tax authorities to quickly determine which taxes, tariffs, excise, and customs duties should be applied to every product line.

These codes are updated by the World Customs Organization every five years, so searching for them may yield inconclusive results. A manufacturer should be able to identify the code if that occurs. The information can also be obtained from the tax agency in your country.

5. Country of origin

Your products’ country of origin is another detail you must provide. You can find out where your goods were produced by looking at the country of origin.

Occasionally, customs require an additional Certificate of Origin from you to determine whether your goods are eligible for importation and subject to additional duties.

6. Payment terms 

An international contract, also known as an Incoterm, is a set of rules that facilitate the trade of goods internationally. Using these terms facilitates clear communication between buyers and sellers regarding transportation management, so there are no misinterpretations.

Incoterms clarify the following:

• Who is held responsible for certain things like shipping, insurance, and customs costs
• Transport is arranged by whom and up to what point
• At every step of the delivery process, who is responsible for the goods

Buyers know when to make payments and what payment methods they can use when receiving their invoices. It is common in business to use net-30 payment terms, meaning payment is due within 30 days of issuance of the commercial invoice.

Whenever possible, provide your clients with a variety of payment methods, such as:

• Cash
• Check
• Credit card
• Online payments
• Mobile payments, etc.

Risks Associated when not Preparing a Commerical Invoice

Preparing commercial invoices is an important document during international shipments, so if it is not prepared, it’s evident that it brings some risks and might affect the parties involved. 

Let’s have a glimpse of the risks associated when you don’t create commercial invoices for international shipping: 

Misunderstanding of goods description

In the absence of a commercial invoice, it’s common to misunderstand the goods in the package list, as the commercial invoice gives a clear overview of the goods in the package. 

Wrong value 

There may be a need for clarification regarding the value being requested verbally rather than being classified in the detailed form of a commercial invoice. 

It is quite certain that the other party won’t agree to the value if you don’t create the commercial invoice, which may even result in an argument with them. In addition, it may lead to the loss of long-term clients or the end of a relationship.

Unprofessional 

After sending the goods for the international shipment, if you haven’t attached the commercial invoice, which is a legal requirement may appear like an unprofessional approach from the exported. There is no way you should ever attempt to do this; otherwise, it will damage your reputation and put them at risk.

Importance of a Commercial Invoice 

A commercial invoice is a document that represents an export transaction between a buyer and a seller. It thus serves to prove the existence of a sale transaction between these two parties. 

The purpose of it is mainly to help with customs clearance and is used primarily to help determine and assess duties and taxes that are payable. As per the parties’ agreements, the invoice contains a complete description of what was sold in terms of quantity, value, and prices. A commercial invoice plays an essential role in several ways. 

Assists in the maintenance of records

As part of the import and export procedures, commercial invoices are a mandatory document used as part of the paper trail that is kept for exports and imports relating to transactions.

Proof of sale

It is essential to have all the details of the transaction, including names and addresses of both buyers and sellers, as well as descriptions and values of goods included in a commercial invoice.

Guarantees payment

Due to their legal nature, commercial invoices play a crucial role in ensuring payment for sales transactions.

Assistance in verification

An importer can check whether the goods’ quality, quantity, and price are in line with those in the commercial invoice by looking at the description.

In addition to serving as a notice of payment due, it can also be used as a reminder.

There is a great deal of information in a commercial invoice, such as payments due, which makes it sound like a reminder for due payments. As a result, it is efficient when it comes to maintaining relationships with customers.

Ensures no one gets fleeced

As the commercial invoice has a fair amount of detail and can be used as proof, there can be no way for the buyer to get out of paying the invoice.

Commercial Invoices vs. Proforma Invoices

When you send an invoice, you ask for the recipient’s payment. As with a bill, an invoice serves the same purpose, but in addition to the bill, an invoice contains additional details, such as contact information for the business, a description of the products or services provided, and terms and conditions of payment.

Although proformas and commercial invoices look very similar, they differ by three key factors:

1. Issuance dates

When a company receives a request from an international customer about one of its products, it issues a proforma invoice to outline the cost of the product and the terms of sale.

A potential buyer can accept the price and terms outlined on the proforma invoice or revert to the proforma invoice with a counteroffer to negotiate. Commercial invoices are issued after shipping.

2. What they include

Both commercial invoices can contain similar kinds of information. Still, it should be understood that the commercial invoices should represent the final details of the transaction, as agreed upon by the parties, including any additional information regarding export and import controls.

Unless the buyer and seller have formally agreed to a contract before the start of the transaction, the proforma invoices and commercial invoices will form part of the paper trail of their contract that will show the terms of the sale. 

3. How they are used

Sellers and buyers use Proforma invoices to negotiate their prices and terms of sale. Alternatively, the buyer may also use it to obtain any necessary import permits, overcome any potential import restrictions, or even organize for the buyer to make payment through a letter of credit or some other payment method.

In addition to collecting payment, commercial invoices are also used by customs agencies to identify applicable duties, taxes, and other import fees, as well as to ensure export compliance. As well as providing information, it facilitates the transfer of goods between the buyer and seller.

Even if you would like to create a proforma invoice or any invoice quickly, the InvoiceOwl can help.

At InvoiceOwl, you get a list of template that helps you create different types of invoice. 

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Examples of Commerical Invoices

The exporter must produce a variety of invoices based on the import customs requirements. Export invoices are vital for overseas customs authorities, and for this reason, they require a particular format for them to process them. Commercial invoice examples are provided below.

1. The standard commercial invoice

This is one of the perfect examples of a commercial invoice. In this type of invoice, there are no special requirements for importing countries, which is the simplest and most common scenario. 

The exporter must include all the relevant information on the standard commercial invoice that the company uses. 

A zero-rated invoice for VAT may also be applied to the invoice. Unless you have received additional instructions from the importer or the clearing agent, you should use this invoice form.

2. The commercial invoice with the declaration

Many countries require a declaration to be typed on an invoice. Generally, the wording varies from country to country. It is often phrased in the language of the country where the goods are being imported, but it is always clear that the goods are of native origin and that the prices are correct for export.

Sellers are committing fraud when they make false declarations to help their clients escape their obligations, such as putting a lower taxable value on the invoice than what they are paid, which will help the buyer escape responsibility and obligations.

3. Certified commercial invoice

It is sometimes necessary for a third party to validate the declaration and invoice content, and the Chamber of Commerce would be the required third party in most cases. 

In addition to the certification stamp, they will use their stamp when stamping the documents. 

In practice, what they are certifying is that they sign the invoice is someone who the company has authorized to make these declarations on behalf of this company as the sole signatory of the invoice. 

To facilitate this process, exporting companies will have to provide the Chamber with the signatures of approved signatories.

The embassy’s commercial section of the importing country may depend on the situation and require that invoices be certified by the embassy’s commercial section, located in the country of export, as part of the export procedure. 

The exporter may obtain a chamber of commerce certification, and the documents are then presented to the appropriate embassy for certification.

4. Specific customs invoice

It is widespread to see these invoice forms in ex-Commonwealth countries, but unfortunately, they are rare nowadays. There are many different invoice forms available from specialist printers for exporters to choose from based on the country of destination.

Commercial Invoice Glossary 

You can quickly access all the shipping, customs, and other terms you’ll need to issue a commercial invoice by following these:

• Actual Gross Weight: Item total weight
• Certificate of Origin: document confirming a product’s country of origin
• Legal Weight or Net Weight: Without package weight, this is the weight of the goods that are being sold
• Package count
• Terms of sale: Buyer’s and seller’s obligations, risks, and costs
• Tax identification number: A number that identifies the organization
• Payment terms: how and when the buyer can repay you
• Pro-forma invoice: a bill prepared before a shipment is delivered
• EIN (Employee Identification Number): An identification number issued to US corporations for tax purposes
• VAT ID (Value Added Tax): a company’s tax identification number in Europe
• Consignee: The recipient of the goods
• Country of origin: A location where goods are manufactured or produced
• Customs: Imported goods are checked and taxed by this authority/department
• Final destination: A final destination for the package
• HS Code: Product tax code

Conclusion

The commercial invoice is a fundamental part of international trade or shipping to a country with a different customs policy.

With a clear understanding of what it is, how it looks, and what fields it must include, it should be easy to create the correct commercial invoice for export every time.