A commercial invoice is a legal document used for processing agreements in international trade. As it is legally legitimate and holds no standard format, the seller (exporter) can issue the document to the buyer (importer) once the goods are shipped.
It is a record that notifies the authorities that the invoice displayed is accurate and duly signed, offering parties with reliable terms. The buyer/importer can then use this invoice – and other shipping documents – to clear the shipment at customs in the country of export and import.
A commercial invoice is prepared with information regarding the shipment to the buyer, freight forwarder, customs broker, C & F agent, and bank. It is mandatory for all sea freight, air freight and incoterms shipments. So, if an exporter ships airfreight via FedEx or DHL, they must provide a FedEx commercial invoice or a DHL commercial invoice.
A commercial invoice is required for any international shipment which carries a commercial value to fulfil all regulations under the export/import country’s customs regulation. The document is to be prepared when the exporter is ready to ship the goods. Since international commercial invoices do not show tax as international transactions, they may not be subjected to local taxes. Hence, the exporter must take care to provide all the information in the correct format so that the importer does not face any trouble at the customs.
Any commercial invoice for shipping & export should contain following essential details:
Also Read: Types of Letter of Credit
Apart from these components, the commercial invoice must also have the product details. This would include the description, quantity, HS code/HSN Code, unit type, price, and currency. Do not overlook to mention the terms of trade or the agreement between the two trading parties. In the end, provide the name, date, and signature of the authorized company representative.
Shippers generally prefer using a template in Microsoft Word or Excel to share invoice details. However, these templates tend to miss some important information, which could lead to expensive delays at the customs department of the importing country. It may also confuse buyers and freight forwarders, leading to fines and demurrage charges.
Exporters could consider using export documentation tools such as IncoDocs which allows one to create packing list and other important shipping documents. Most of these templates are aligned to the UN Layout Key recommendations for trade documentation. This, in turn, ensures trade compliance, doing away with any problems and delays in shipment.
The best way, however, is to rely on a pre-filled invoice online. One can find an aligned invoice by the UN’s Economic Commission for Europe (ECE). Or refer to sample invoices from international shipping companies such as FedEx and UPS.
Alternatively, download an invoice format from commercialinvoiceform.org. This allows you to enter the details online directly. It has a glossary of words attached, which outlines the terms on the form by clarifying each section.
Remember, there is no specific format for creating an invoice. However, it must have all the basic (but important) details of the transaction.
Fill up your invoice carefully. While the taxation ID, address details, and recipient’s details are important, note that if the sender or the recipient were an individual (and not a company) their tax ID would ideally be their Social Security Number or equivalent government identification number.
Finally, ensure that you fill any columns that are not applicable for your shipment with ‘NA’. Do not leave them blank.
The common question arising in businesses is what is the difference between Pro Forma Invoice & Commercial Invoice. A pro forma invoice is required in the pre-shipment process. It generally gives customers an idea of what to expect in terms of the details of the transaction, including the price, quality and quantity of the product, payment, delivery terms, etc. In other words, it documents the sale terms, but it doesn’t demand payment.
On the other hand, a commercial invoice is required in the post shipment process. It allows request payment for items that have actually been sold by showing the amount actually to be paid, it will provide information of the seller, buyer, destination, mode of dispatch, current account, freight forwarder, HS code of the product, price, payment terms, and currency of transaction, among other details.
A seller requires a tax invoice to initiate his tax procedures. He can independently stipulate his amount for chargeable goods (Something like GST Invoice in India).
In contrast, a commercial invoice is required to specify invoice for quality, quantity, price & terms of sale.
Also Read: How to claim GST Refund on exports?
A commercial invoice is used for all export-related activities, and a customs invoice is declared for the importing country's customs regulation. A customs invoice has an additional step involved, which is why it is called an extended version of a commercial invoice.
The term zero value/no value is simply used to derive the purpose of a sample commodity. So if a product is shipped for a specimen reference, the trader has no amount to pay for the transit.
A commercial invoice is a legal statement that acts as evidence of a trade transaction between the importer and the exporter. In comparison, a packing list is a detailed description of goods being shipped for proceedings.
These documents are required for the processing of shipment. A Commercial invoice is used for helping authorities to understand the terms of the transaction, and a Certificate of Origin is used for appropriate testing and drafting of import duties for goods.