Commercial Invoice

A commercial invoice is a legal document that an exporter or seller issues to an importer or buyer. It is a proof of sale and a contract between the two parties. This document, when properly completed, helps a package get through customs without any hassle.

The document contains the description of the goods inside the package and other details, like price and weight. However, it does not indicate ownership. The information helps customs officials decide if the merchandise can move in or out of a nation. Moreover, by inspecting this document, officials can determine the duties and taxes applicable to the goods.

• The commercial invoice meaning implies a document required for the customs clearance process. The exporter or seller issues this invoice to the buyer or importer.
• According to commercial invoice requirements, exporters must ensure they enter certain details in the document before sending the shipment. Such details include harmonized system (HS) codes, description of the goods, quantity, incoterms, shipping number, etc.
• Contrary to a bill of lading, this invoice does not indicate ownership.
• The customs clearance process can be time-consuming if exporters do not provide accurate details while creating this document. Moreover, they might have to pay extra.

The commercial invoice meaning refers to an essential document required for international shipping. The exporter issues this document; it contains crucial information necessary for the import and export clearance procedure. In the importer’s country, the customs authorities check the details in this document to decide which taxes and duties apply to the shipment. Therefore, the package can easily get through customs without delay if this document contains accurate information.

The details in this document include price, quantity, sale, or trade conditions agreed upon by the seller and buyer, etc. This document may also have the harmonized tariff classification number or the U.S. Schedule B number, but to the sixth digit only. Unlike a bill of lading, this document does not carry a title to the merchandise or indicate ownership of goods.

Exports must properly fill out this document with accurate information, per legal requirements. If a seller fails to do so, it might lead to customs delay, and they might have to pay certain fees. Moreover, incorrect details in this document result in an underpayment of taxes and duties. This, in turn, can lead to legal ramifications.

Let us look at some details that exporters must mention on a commercial invoice for international shipping, per legal requirements:

#1 Reason For Export

The seller must state the reason for sending the merchandise. In other words, the exporter must mention if it is a gift or a trade.

#2 Description Of The Merchandise

The exporter must describe the goods accurately. For example, instead of mentioning only ‘clothing’, one must write ‘Men’s Shirts 100% Cotton.’ Exporters must remember not to use the company’s product codes to describe the items in the merchandise. Also, the exporter must mention the brand name if the products are of a certain brand.

#3 Incoterms

Also known as International Commercial Terms, these are standardized international agreements concerning goods transportation. Such agreements shed light on the following details:  

• The person or entity responsible for insurance, import, shipping, and customs expenses concerning the shipment
• Who looks after transport and till where

Lastly, the Incoterms explain who is responsible for the merchandise at every shipment phase.

#4 HS Code

By checking this code, customs authorities determine the type of goods in the package. Then, they determine what and how much taxes and duties would be applicable based on the type.

#5 Country Of Origin

Exporters must mention the name of the country where the production of the goods took place.

#6 Insurance Costs

The exporter may need to show the insurance and freight costs as different items in this document. This is because customs officials will compute the values if they do not show them separately. As a result, the seller may end up paying more.

#7 Weight

Per the legal requirements, exporters must mention the net and gross weight of the goods on the commercial invoice for shipping them to another country.

#8 Shipping Number And Date

Also known as the air waybill number, the shipping number is the carrier’s number that exporters need to mention on the document. Sellers can also mention the order and invoice numbers for administrative purposes. However, filling them out is not mandatory.

Besides these, exporters must mention certifications or declarations, if necessary, per commercial invoice requirements.

Let us look at a few commercial invoice examples to understand the concept better.

Example #1

Suppose Company ABC, an organization based in India, decided to purchase goods of a specific quantity from Company DBC, headquartered in Texas, U.S. The latter issued a commercial invoice to the former and mentioned the required information concerning the shipment in the document. Based on the details provided, the customs officials calculated the duties and taxes, and the shipment successfully got through customs easily.

Example #2

Citi Treasury and Trade Solutions Asia Pacific completed its first pilot digital trade finance transaction with the help of a blockchain-based shipping platform called TradeLens. IBM and GTD collaborated to develop this multifunctional platform. Its secure and streamlined issuance process offers an end-to-end paperless solution to cargo owners, shippers, banks, freight forwarders, etc.

The process reduced the document processing time by ten days from an estimated 20-25 days. Moreover, it decreased the costs related to transport and postage.

The validation of documents happened through the TradeLens platform during the company's shipment. The list of digitized documents included a packing list, certificate of origin, Commercial Invoice, bill of lading, and commercial invoice.

Individuals can download a commercial invoice template like the one below if they are facing trouble creating this document.

Source

Preferably, exporters should print this invoice on paper under the company letterhead. The details must be in English and include organization-related information like the tax number, address, etc.    

The definition and purpose of documents like commercial, proforma, and tax invoices can be confusing for one new to trading. That said, individuals should know their meaning and importance to understand when they need to send these invoices. So, let us look at some distinct characteristics of the three documents.

This article has been a guide to What is Commercial Invoice. We explain its requirements, template, examples, and comparison with proforma invoice & tax invoice. You can also go through our recommended articles on corporate finance –

• Pro Forma Invoice
• Letter of Credit (LC)
• Maritime Law