Your products are safely packed and new international customers are eagerly awaiting their arrival. Now you just need to get your goods to them by air, land, or sea. But before you can send your goods abroad, you first should produce a number of documents, one such being the commercial invoice. Acting as a legal agreement between exporter and foreign buyer, this document is crucial for clearing customs, avoiding delays, and getting your goods to global patrons.
While many export businesses opt to have a customs broker or freight forwarder prepare these documents, it’s ultimately the exporter’s responsibility to not only understand the essentials of a commercial invoice, but to ensure its accuracy.
What Is a Commercial Invoice?
Created for international shipments, a commercial invoice is a document that contains important information about the exported goods and their sale. At a high level, a commercial invoice is a bill for exported goods from seller to buyer. More specifically, it’s a legal document that lays out the details of the goods being sold and the total amount the buyer should pay for them.
Unlike typical business invoices, it includes additional details relevant to items sold across international borders. Customs officials in the buyer’s country use this information to confirm the shipment is legal, among other things.
Not all commercial invoices look the same or follow the same format. Rather, the governments involved in an export transaction should specify what information must be included, what language should be used to fill out the commercial invoice, and how many copies must be made.
What are Commercial Invoices Used for and Why are They Important?
A commercial invoice is a legal document required to conduct international trade. Put simply: a business cannot ship its products to customers or distributors overseas without a commercial invoice. The document serves as proof of sale and is the basis for the exporters’ customs declaration, clearly describing the goods in a shipment and their value.
The customs office in the buyer’s country use the information provided within a commercial invoice to determine what tariffs, duties, or other fees may apply. In today’s global marketplace, customs officials can process countless parcels a day. Complete and accurate commercial invoices are essential to efficient customs clearance. Thus, it’s important for an export business to get its commercial invoices right the first time to prevent hold-ups with their shipments and stay on good terms with customers and customs authorities.
What Should a Commercial Invoice Include?
Although there is no single standardized format for a commercial invoice, the document usually includes details on the parties involved, specifics about the goods being shipped, and a signed declaration affirming that the information contained in the invoice is true. Exporters should expect to include the following information:
- Invoice number and date: Each commercial invoice should have a unique number and indicate the date of issue.
- Country of origin: Where the goods were manufactured, whether in whole or in part. This information should be factored into the calculation of customs fees as products traded between certain countries may be given preferential treatment.
- Seller/exporter details: Full contact details for the seller, including individual’s name, company name, and full address.
- Buyer/importer details: Full contact details for the buyer, including their full name, address, and telephone number. If the shipment will be handled by an importer who is not the recipient, a full name and address for the importer should be noted here as well.
- Full description of goods: The quantity of goods (indicating both units of measure and total units included), gross weight and net weight, and a detailed description of the items in the shipment.
- Total value of goods: This figure, the total price for all goods included in a shipment, is used to determine customs and import duties.
- Mode of transport and route: Specify the method of transportation for the goods (e.g., air, ocean, river, rail) and as many details about the shipping route as possible.
- Payment terms: This indicates how the buyer should pay the seller for the goods, including terms, conditions, any discounts or additional fees, as well as the currency of settlement as agreed upon in the pro forma invoice (more on that below).
- U.S. Schedule B or Harmonized System (HS) code: An HS code is a 6-digit code to classify traded products. In the U.S., exports are tracked using a Schedule B code, a ten-digit code that shares the first six digits of the item’s HS code. Including this classification code can facilitate the export process and prevent any unnecessary fees.
- Incoterms: Short for international commercial terms, incoterms are internationally recognized rules that define the responsibilities of buyers and sellers in export transactions, clarifying costs, tasks, and risks for both parties. It’s not mandatory to include them on a commercial invoice, but their inclusion can help streamline the export process.
- Declaration: A signed declaration indicates that the seller attests that the information provided is true. The seller should double check to ensure the form has been filled out accurately before signing the declaration.
Put simply: A business cannot ship its products to customers or distributors overseas without a commercial invoice. The document serves as proof of sale and is the basis for the exporters’ customs declaration, clearly describing the goods in a shipment and their value.
What’s the Difference Between a Pro forma Invoice and a Commercial Invoice?
Both pro forma and commercial invoices are used in the global trade process, and they often feature most – or even all – of the same information. But it’s important to understand the differences between the two.
Pro forma invoice
A proforma invoice is created before goods or services are sold or shipped. It confirms the buyer’s purchase request and the provisional quantities and prices of the goods to be sold. It’s not a legally binding document, but rather an estimate of what the shipment will cost and when the buyer can expect it. The pro forma invoice is largely used for negotiations between the two companies and gives the buyer a chance to confirm important details before the purchase proceeds.
Commercial invoice
Once both parties agree on the terms laid out in a pro forma invoice, the seller can then produce a commercial invoice, confirming the finalized details of the sale. The exporter should create this document only once the goods are ready to ship. Unlike the pro forma invoice that precedes it, the commercial invoice is a legal document between exporter and buyer that lays out much of the same information about the goods being sold, the amount the foreign customer will pay for them, and other pertinent details. These commercial invoices are used by government officials to control the sale of goods across international borders and levy appropriate customs duties.
How to Develop an Effective Commercial Invoice Process
It’s possible to create one-off commercial invoices every time a company completes an international sale, but companies that seek to scale their export business may want to develop a repeatable, streamlined process. Here are some steps an exporter can take to do so:
- Develop or adopt a standard form or template. Creating a standard form can save time and effort. Try to make sure that this template is easy to fill out and to read. Consider making a separate template for each country you commonly export to.
- Ensure that all essential elements have been included and verify their accuracy. When in doubt, err on the side of providing more detail, not less. Try to compare the details on the commercial invoice with any other documents previously prepared for the sale (such as the pro forma invoice). Consider incorporating a standard review process to look for errors, omissions and inconsistencies.
- Consider translating the invoice. Some exporters find it helpful to create a version of the commercial invoice in the language of the destination country to speed the clearance process. In some cases, the destination country may require it. If doing so, however, it’s important to include a copy in the seller’s native language as well.
- Always retain an extra copy. It’s typical to produce more than one signed copy of a commercial invoice, but an exporter should always produce and keep another for its own reference and record keeping, should a problem arise.
The Bottom Line
The commercial invoice is just one vital document businesses need to export successfully – and it’s one that they should be prepared to deliver any time they are preparing to ship goods to customers abroad. Understanding the necessary information to include in this legal document – as well as how it is used by customs officials – can help exporters properly prepare their commercial invoices, prevent delays in the customs clearance process, and get goods to overseas customers faster.
A version of this article was originally published March 24, 2021.
Photo: Getty Images
