As a New Zealand business, you may or may not be aware of the different types of documents that are required when shipping internationally. Some of these documents include air waybills, commercial invoices, bills of lading, pro forma invoices and many more.
Among these documents, the commercial invoice is one of the most essential documents required for any shipments being imported or exported.
A commercial invoice is crucial for a seamless custom clearing process as well as for correctly calculating taxes and fees on your shipments. If you’re unsure what commercial invoice is, we hope that by reading this article you can fully understand its' features.
Understanding the meaning of Commercial Invoice
A commercial invoice is a specialised export document that acts as a customs declaration for items being delivered across international borders.
It includes comprehensive information on the goods, their value, and the transaction between the customer and the supplier. Custom authorities will use this particular document to calculate the applicable taxes, tariffs, and duties on imported goods.
The commercial invoice serves as a contract and evidence of sale between the seller and the customer in addition to being a customs obligation. It describes the conditions of the sale, such as the number and description of the items, the terms of payment, and other important information.
However, the commercial invoice does not prove ownership or a title to the items that are done by a different document known as the Bill of Lading.
Why Do We Need A Commercial Invoice?
Customs Clearance
Customs officials use the commercial invoice during customs clearance to assess the value of the goods and determine the applicable taxes and duties. Without a properly completed commercial invoice, your shipment may face delays or even be rejected at the border.
Legal Compliance
Whenever an International trade is conducted, it is legally required to have a commercial invoice. It guarantees that you accurately declare the value of the products being shipped internationally and that you are in conformity with customs laws.
Proof of Sale
The commercial invoice serves as evidence of the transaction being done between the buyer and the seller. The buyer and seller's transaction is attested to by the commercial invoice. It helps establish the terms of the sale, including the agreed-upon price, quantity, and payment terms.
Insurance Claims
If there is a case of dance or loss during transit, the commercial invoice is used to substantiate insurance claims. Commercial invoices act as a document that offers proof of the worth of the goods delivered and facilitates the insurance process.
Essential Information in a Commercial Invoice
To ensure a smooth customs clearance process and compliance with regulations, it is crucial to include the following information in your commercial invoice. Take a look at our example of a commercial invoice below and let us explain some of the few important elements in a commercial invoice.
1. Bank Details, Shipper and Receiver Details
This is where you will need to put in the bank account information that will be utilised for the sale and purchase. However, if you’re preparing a proforma invoice and a non-commercial invoice, you can skip this part.
You will also need to include information regarding your details as a shipper and details of the receiving end. Details such as Company name, GST number or Phone number must be included in this section.
2. Goods Description
Be careful when filling in the description of your content as generic or broad descriptions are no longer permitted and are likely to delay your package to reach its destination.
The correct description should have the items, the amount there are, what are they made of and what they will be used for. This means that writing ‘samples’, ‘parts’, ‘spares’ or ‘electronics’, are not acceptable for customs classification, safety and security reasons. Instead of using ‘electronics’, for example, be specific and use ‘Laptop’.
3. Commodity Code
Key in the product identification code used in the exporting country to classify the product or goods that are being exported. Doing this aids the clearance process and avoids delays.
4. Origin Country
Refers to the original place of manufacture of the goods instead of where the exporter’s country is. If an item is manufactured or made in more than one country, you are required to write it down.
5. Invoice Total Declared Value
Note the value of goods according to the Incoterm selected. If the seller is responsible for paying the freight and insurance charges, these two elements will need to be jotted down too.
On the other hand, the buyer will be responsible to pay the freight company or any other related costs, you are required to only key in the value of goods.
6. Type of Export
Choose and note down one of the below:
(a) Permanent, (b) Temporary or (c) Repair & Return
7. Terms of Trade (Incoterms)
The International Commercial Terms, or Incoterms, are a set of guidelines that specify the duties and risks that should be assumed by the seller and the receiver throughout an international trading process.
In this section, you will need to use the Incoterm that best describes the terms of sale.
For Time Definite International (TDI): EXW, FCA, CPT, CIP, DAP, DAT, DDP
8. Reason for export
The could be explained with simple words such as Gift, Sample, Replacement, Personal use not for Resale, Sale Repair or After Repair.
Here are some other elements that the above sample commercial invoice does not have. However, do take note that not all commercial invoice templates are the same for every company, so it is best to understand what they are.
9. Air waybill number
Write down the string of numbers that is on the Air waybill.
10. Harmonized Tariff Code
Also known as the Harmonised System (HS) code that matches the food to be exported. A correct HS code assists in clearance and prevents delays.
11. Unit Net weight and subtotal weight.
Not to be confused with the dimensional weight, these are the physical weight of your products. Declare the weight of a single unit of your product and also the total weight of that product if you are shipping multiple.
Where can I find a Commercial Invoice Template?
We have produced a free commercial invoice template that you may use for your cross-border commerce dealings at your leisure. This template from DHL complies with industry standards and has each of the components needed to create an exhaustive commercial invoice.
Click here to download your very own commercial invoice template!
Tips when filling Out a Commercial Invoice
Don’t want your commercial invoice to be rejected and slow down the delivery process?
Well, you’ll have to ensure your commercial invoice is on point when you’re preparing it. Here are some tips on how you can do that.
1. Complete and Accurate Information
Verify all the information on the invoice, including the addresses, phone numbers, and descriptions of the products. Any errors could result in customs delays or extra charges.
2. Use Simple but Detailed Language
Clearly state the composition, function, and any special qualities of the items being sent. Use precise language; avoid using concepts that are vague or general.
3. Include the correct Harmonized System (HS) Code
For customs, items are identified and categorised using the HS code, which is a standardised categorization system. To speed up the customs clearance procedure, use the appropriate HS code for each item.
4. Declare the Correct Value of Goods
Using the current market pricing, state the true value of the products. Undervaluing or overvaluing your product might result in penalties or delays in customs clearance.
5. Ensure Compliance with Incoterms
Select the relevant Incoterms to reflect the responsibilities and obligations that the buyer and seller have agreed upon. This helps keep things clear and peaceful during the shipping procedure.
6. A Copy of the Commercial Invoice Should be Kept
Keep a copy of the business invoice for your record. This might act as evidence of the transaction in the future and may be helpful for upcoming queries or references.
7. Consider incorporating E-Invoicing
The distribution of necessary documents can be expedited with electronic invoicing, which can also streamline the invoicing process. Many shipping platforms allow for electronic invoicing.
The Always Dependable Commercial Invoice
Successful international shipment depends on knowing the value of a commercial invoice and how to correctly produce one.
Your commercial invoice should have precise and detailed information to help with smoothening customs clearance, regulatory compliance and accelerating the shipment process. Safe to say that an accurate commercial invoice will foster a strong relationship between you and your trading partners.
To prevent delays or penalties, always remember to double-check every detail, use simple language, and include all pertinent information.
Now that you’ve understood what a commercial invoice is, get ready to learn about another type of invoice that you might have not known of - Pro Forma invoice.
Frequently Asked Questions About Commercial Invoices
Yes, you will need a commercial invoice whenever you ship internationally as it is a requirement during customs clearance.
Every commercial invoice might be slightly different from the other. You can download our commercial invoice template here and use it to fill in the required info.
The elements below are required to form a commercial invoice that is legally binding.
- Bank Details, Shipper and Receiver Details
- Goods Description
- Commodity Code
- Origin Country
- Invoice Total Declared Value
- Type of Export
- Terms of Trade (Incoterms)
- Reason for export
- Air waybill number
- Harmonized Tariff Code
- Unit Net weight and subtotal weight.
Yes, a commercial invoice serves as a contract and proof of payment made by the buyer to the seller.
Yes, commercial invoices are legally binding documents as It contains crucial details about what is inside a package and who is responsible for paying customs fees.
Commercial invoices also aid the customs authorities to decide if import taxes are required for the cargo shipped.
No, you cannot. A pro forma invoice is a document that states the offer or preliminary bill from the seller to provide specific products at a given price. Instead, you will require a commercial invoice for customs clearance.
Find out more about the differences between pro forma invoices and commercial invoices.
A pro forma invoice often serves as a preliminary document that lists the details and the anticipated charges of a proposed transaction. In other words, it is given by an exporter (vendor) to a potential importer (customer) before the delivery of a product or service.
Its main idea is just to provide buyers with an idea of how much money they might need to anticipate paying for the goods or services ordered.
It is the responsibility of an exporter to issue a pro forma invoice as pro forma invoices are just a document of declaration or quotation by the seller to the buyer.
Importers will require a proforma invoice as they might want to evaluate the proposed prices set by the exporters regarding the product and services that an exporter might want to provide in the future.
Click here to know more about pro forma invoices.
The exporters will be the party to prepare a pro forma invoice. However, a pro forma invoice is provided before the goods are sent to the consignee as it is a document to highlight the proposed price for a product or service.
When goods are received by the consignee or recipient, they will instead receive a commercial invoice instead of a pro forma invoice.
