The commercial invoice is a legal document between the exporter and the importer that clearly describes the final goods sold by the supplier, the payment amount needed to be paid against the sold goods; it also contains the HS codes of the products, quantity amount sold, unit price of the products and other necessary details. The commercial invoice is one of the main documents used by customs in determining customs duties for the imported goods.
It should be noted that commercial invoice must correctly identify what is being exported as well as the currency value, which is taxed accordingly.
Table of Contents
- Purposes a Commercial Invoice serves in an International Trade
- Why Complete Accuracy of the Information on the Commercial Invoice is Essential ?
- How to Make a Commercial Invoice and What are the Information that exists in Commercial Invoice ?
Purposes a Commercial Invoice serves in an International Trade
Let us see what purposes a commercial invoice serves in an international trade.
- It is a contractual document between buyer and seller in the international trade, whereby the seller supplies a certain quantity of a specific product at an agreed price with some conditions, i.e., terms of delivery (Incoterm®) and terms of payment. The terms of delivery can be Ex-works, FOB, CFR and others are agreed between the importer and the exporter. The terms of payment can be TT, LC and others as agreed between the importer and the exporter.
- It is the accounting document against which the buyer pays the seller. The buyer after getting the commercial invoice pays the due amount through banking channel to the seller. Commercial invoice accounting amount is the final due amount the buyer needs to pay to the supplier for the goods purchased.
- It is also the main document used to support the customs declaration, and for the customs clearance, since it provides the information on the commodity description (which determines the Harmonized System (HS) code), the origin (which determines the customs tariff treatment), the quantity and the value (which determines the value for customs, on which duties and taxes are calculated), the unit price of the products, the terms of payment and the delivery terms.
For making commercial invoice almost all countries allow the use of English since this is the international language of trade, but it can be a good practice for the exporter to translate the commodity description in the language of the importing country. For example, some countries, in particular in Latin America, like to see statements as to the correctness of the commercial value in Spanish (or Portuguese for Brazil) right on the invoice.
Why Complete Accuracy of the Information on the Commercial Invoice is Essential ?
It should be noted that no matter what the language or languages of the document are, complete accuracy of the information on the commercial invoice is essential to avoid excessive duties and/or penalties. The commercial information is important to accurate as customs officer will charge huge fine to the importer if the quantity and declaration is not same as the physical goods examination. It can be seen that many times, the declaration of the goods in the invoice is ABC with HS CODE: 8392 00 67 with duty 37% but the original goods imported is XYZ with HS CODE: 9867 00 01 with duty 58%. So the goods are mis-declared in invoice to provide lower duty by the collaboration importer and exporter. Once the products are examined by the customs officials after arriving in the destination port, the customs find the mis-declaration after the physical examination and gives huge fine to the importer. So the importer now needs to pay both the original 58% duty as well as the huge fine incurred by the mis-declaration of the goods.
So it should be cautiously seen that accurate information is must in the commercial invoice in the international trade
How to Make a Commercial Invoice and What are the Information that exists in Commercial Invoice ?
Let us go into details of how to make a commercial invoice and what is the information that exists in commercial invoice.
To note, the commercial invoice does not need to be in a specific format and the seller can lay out the information freely, as per seller format; but it should be in mind that, the information on commercial invoice must be clear, legible, complete and accurate.
Below is an example of the minimum requirements for a commercial invoice. Note that additional information may need to be added, depending on requirements in the destination country. So once the supplier makes the commercial invoice, it should be checked by the buyer for confirmation from the buyer end. The buyer may have any information that needs to be included as per the buyer country customs in invoice. So after final confirmation from the buyer end the final commercial invoice is sealed and signed.
The commercial invoice is made in supplier pad and it is made by the supplier after all confirmation of the final quantity and invoice amount.
The commercial invoice is directed to the buyer of the goods, with buyer name, address, Tax Identification number, VAT number.
The commercial invoice is given a commercial invoice number and date. The date should be later than the date of pro forma invoice and LC date, as commercial invoice is generated after making the pro forma invoice and LC.
Also the mention of goods going from which origin port to destination port is mentioned and the mode of transportation it is taking, that is weather by sea, air or land.
Then details of the description of the goods are provided, HS Code, quantity in pieces and kg, unit price in pcs, kg, m or any other measurement needed as per product dimensions to determine the price is provided, total invoice amount.
Then the product origin is clearly mentioned.
Then the LC reference number or any other bank payment reference number is mentioned.
Finally the commercial invoice is sealed and signed by the supplier to send it to buyer.
To note, every bit of information is critical on the commercial invoice. An omission, an error, or a discrepancy could stop the goods before they even leave the country, delay the goods in the country of transit, delay the goods in the country of importation, or delay the shipper receiving payment.
