Commercial Invoice for International Shipping: A Guide for Small and Mid-size Businesses

The commercial invoice for international shipping plays a fundamental role, serving as the financial anchor around which all other shipping documents revolve. This vital document is far more than just a bill for goods; it’s a detailed record of the transaction between the seller (exporter) and the buyer (importer) and holds a multifaceted role in the shipping process. 

This post will explore what a commercial invoice is and its importance, who issues them, and how small and mid-sized businesses (SMBs) dealing with international shipping should use these invoices to meet their needs.

What is a Commercial Invoice?

A commercial invoice provides the details about the transaction, including the description of goods, prices, quantities, shipping costs, and seller and buyer details. From detailing the specifics of the trade agreement to acting as the primary document used by customs authorities for assessing duties and taxes, the commercial invoice is an indispensable part of international commerce.

Who Provides the Commercial Invoice?

The commercial invoice for international shipping is typically completed and provided by the exporter or the person (entity) who is selling the goods. The commercial invoice is important because it is used by customs authorities to assess duties and taxes. In short, it’s the seller’s responsibility to ensure the commercial invoice is accurate and complete. Small and mid-size businesses (SMBs) can also ask their freight forwarder for help regarding the commercial invoice, including providing a physical or electronic version of the document, help in filling it out, and who to provide it to when shipping internationally.

What is Commercial Invoice in International Shipping?

A commercial invoice is a critical document in international trade, primarily used for customs declaration. It provides information about the buyer, the seller, the goods being transported, and the transaction’s value. It allows customs officials to determine duties and taxes, verify shipment contents, and gather statistical data.

Components of a Commercial Invoice

There is a basic template used for a commercial invoice in relation to international shipping, but the components are generally the same and ensure a smooth international shipping process. The components of a commercial invoice for international shipping include the following:

• Seller/Exporter’s Details: Name, address, and contact information.
• Buyer/Importer’s Details: Name, address, and contact information.
• Invoice Number: A unique identifier for the invoice.
• Date: The date when the invoice is issued.
• Terms of Sale: How and when the goods will transfer from the seller to the buyer.
• Terms of Payment: When the sale will be completed and money paid. 
• Description of Goods: Details including product name, SKU, HS (Harmonized System) codes for classifying traded products internationally, quantity, and unit price.
• Total Value: The total cost of the goods. It can be in the seller’s or the buyer’s currency, depending on the agreed Incoterm.
• Shipping Method and Details: Information about the method of shipment and carrier details.
• Incoterms: Standard trade definitions most commonly used in international sales contracts. For example, EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, and Freight), etc.
• Country of Origin: The country where the goods are manufactured.
• Signature and Declaration: The exporter’s declaration that all information is correct, along with a signature and date.

Filling out a Commercial Invoice

Making sure a commercial invoice has been filled out correctly by the seller is an important part of your international shipping process. The lack of an accurate commercial invoice can result in delays and increased shipping costs. Accurately completing a commercial invoice includes the following steps:

• Start by filling in the seller/exporter and buyer/importer contact information. Ensure that the information is accurate to prevent any confusion or delays.
• Specify the date and unique invoice number for record-keeping and tracking.
• Detail the products being shipped in the description section. Provide comprehensive descriptions, including the HS codes, which are crucial for customs classification.
• Indicate the total value of the goods. It should correspond with the value declared in other shipping documents, such as the Bill of Lading or Airway Bill.
• Record the shipping details and the agreed Incoterm. This information provides clarity on responsibilities concerning shipping costs and risks.
• Declare the country of origin for each good. It’s crucial for determining duties and trade compliance.
• Lastly, sign and date the invoice to authenticate it.

Mistakes to Avoid in Preparing a Commercial Invoice for International Shipping

When preparing a commercial invoice for international shipping, paying close attention to details is crucial.

• Inaccurate or Incomplete Description of Goods: An inaccurate or incomplete description of the goods in your commercial invoice can cause serious issues. A thorough description, including the goods’ type, quantity, and other pertinent details, is crucial for customs clearance. Lack of clarity could lead to misunderstandings or shipment delays.
• Incorrect Classification or HS Codes: Your products’ Harmonized System (HS) codes must be correctly stated in your commercial invoice. Mistakes in these codes can result in inaccurate shipment classification, leading to incorrect duty and tax assessments. Always double-check these codes to ensure accuracy.
• Failure to Specify Terms Payment: A common mistake is not specifying the terms of payment. It’s essential to specify who will be responsible for the duties and taxes upon arrival at the destination country.

Commercial Invoice Vs. Proforma Invoice: What’s the Difference?

The commercial invoice plays a significant role in the customs process. Customs officials use the commercial invoice to determine the true value of the imported goods, upon which import duties and taxes are calculated. 

A proforma invoice, on the other hand, is a preliminary bill of sale sent to buyers before a shipment or delivery of goods. It often gives a general idea about the kind and quantity of goods to be shipped, their value, and important specifications like weight and size. 

Though both types of invoices are used in commercial transactions, there are several key differences between them:

• Legal Validity: The most important distinction is that a commercial invoice is a legal document, while a proforma invoice is not. A commercial invoice can be used for legal purposes such as determining customs duties and serves as a proof of sale, while a proforma invoice is a provisional document, more akin to a quote or estimate.
• Purpose: A commercial invoice is used after the sale to bill the buyer and to facilitate customs clearance. On the other hand, a proforma invoice is used before the sale to negotiate the terms or confirm the details of the transaction. It acts as a preliminary document that guides the formation of the sales contract.
• Finality of Information: The commercial invoice contains the final, definitive information about the goods, including the exact quantity, price, and description. It reflects the actual goods that have been or will be shipped. In contrast, the information in a proforma invoice is tentative and subject to change. It includes the anticipated costs and details of goods that are yet to be shipped.
• Payment: A commercial invoice is a demand for payment – it’s issued when the seller wants the buyer to make payment. On the other hand, a proforma invoice is not a demand for payment. It’s simply an estimate of what the transaction will look like, which can help the buyer make appropriate arrangements for funds.
• Customs Declaration: Customs authorities require a commercial invoice to determine the value of goods for imposing import duties and taxes. A proforma invoice, lacking legal validity, is generally not accepted by customs for this purpose.

Using the Commercial Invoice

After completing the commercial invoice, the following steps are necessary:

• Include it with the shipping documentation, making sure that it’s easily accessible for customs officials.
• Provide a copy to the buyer for their records and customs declaration on their end.
• For electronic customs declarations, a commercial invoice might be submitted digitally via a specific platform or electronic data interchange (EDI) system.

Remember, the commercial invoice serves as a binding contract between the seller and the buyer, so it must be accurate and truthful.

Keep a Copy for Your Records

You should always keep a copy of each commercial invoice, regardless of whether you are the importer or exporter. They are crucial for accounting, audits, and in case of disputes. Because different countries have varying requirements for how long these records must be retained, it’s a good idea to check your local regulations and comply with them.

When to Use a Commercial Invoice

A commercial invoice is a crucial document in international trade, serving as a bill for the goods from the seller to the buyer. It carries vital details about the transaction, including product description, prices, quantities, shipping costs, as well as delivery and payment terms. But when exactly should one use a commercial invoice in shipping? Here are the instances:

For Customs Purposes

Import/Export Declarations: Anytime goods are shipped across international borders, customs authorities in both the exporting and importing countries require a commercial invoice to process the shipment. It helps them determine the true value of the goods and calculate customs duties and taxes.

• Determining Tariff Classification: Customs officials use the description of goods provided in the commercial invoice to assign an appropriate Harmonized System (HS) code. This international standardized system classifies traded products and determines the level of duties to be paid.
• Verification of Shipment: A commercial invoice can be used to check whether the goods shipped are in line with what was declared. Customs officials can compare the content of the shipment against the details on the invoice.

For Record Keeping and Auditing

• Financial Auditing: Commercial invoices are a component of a company’s financial records, so they should be used whenever a company wants to keep track of its income and expenses related to the sale and shipment of goods. They may be required by auditors during financial audits to verify the accuracy of financial statements.
• Inventory Management: In inventory management, commercial invoices can be used to verify whether the correct quantity of goods has been shipped or received. They can also be used to reconcile stock records.

When Establishing Legal Ownership and Terms

• Proof of Ownership: A commercial invoice serves as proof of the contract of sale and ownership between the buyer and the seller. If a dispute arises over the ownership of the goods, a commercial invoice can be used as a legal document to establish who owns what.
• Defining Payment Terms: A commercial invoice is often used to state the payment terms agreed upon by the buyer and seller. These terms include the total amount due, the due date, and the preferred payment method.

For Insurance Claims

• Determining Insurance Value: If goods are damaged or lost during transit, a commercial invoice can serve as proof of value when making an insurance claim. The insurance company uses it to ascertain the value of the goods in question.
• Filing a Claim: An insurance company may require a copy of the commercial invoice when a claim is filed. This helps them to understand the specifics of the transaction and the nature of the goods involved.

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