written by | November 8, 2022

Understanding About Commercial Invoice and Its Details

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Table of Content


Commercial invoices are legal documents used to process international trade agreements. It holds no standard format, so the seller (exporter) can issue it to the buyer (importer) once the goods have been shipped. The document informs the authorities that the invoice displayed is true and accurate and that the terms are reliable. Invoices and other shipping documents can be used by the buyer or importer to clear the shipment at customs. Continue reading to learn more about the commercial invoice, its importance and examples.

Did You Know? While sending any form of article usually a minimum of 3 copies of a commercial invoice is required and in India, an KYC is also required in most cases.

What is a Commercial Invoice?

International sales operations require the use of commercial invoices. Customs clearance is simplified with this document, as it calculates the taxes and duties due and serves as proof of sale between exporters and importers. Commercial invoices are often confused with other documents, such as proforma invoices, bills of lading, customs invoices, and packing lists. Documents like these shouldn't be used the same way as commercial export invoices.

It shouldn't be challenging to complete a commercial invoice for export. Nevertheless, you must remember that any error can negatively affect your online shop and customers - from delayed shipments to cancelled orders. Your international customers will be as happy as your domestic customers by automating this task and avoiding shipping issues caused by human error.

Also Read: Tips to Make a Robust Export-Import Business Plan

Importance of Commercial Invoice

Commercial invoices are export documents that provide legal evidence of a section between a buyer and seller. It helps determine and assess taxes and duties payable for customs clearance purposes. This document contains a complete description of the goods sold, their quantities, and values as agreed between the parties.

Commercial invoices are essential for the following reasons:

1. Ensures the keeping of records

An export or import paper trail is incomplete without commercial invoices and mandatory import and export procedures documents.

2. Detailed sales evidence

Commercial invoices are essential evidence of the sale transaction because they contain all the transaction details, such as the buyer, seller, goods description, and value.

3. Guarantees payment

Commercial invoices are documents that prove the sale of goods and therefore play a crucial role in ensuring their payment.

4. Assistance in verification

Importers can cross-check and verify the shipment's contents against the commercial invoice based on the description of the goods in terms of quality, quantity, and price. 

5. Serves as a reminder for payment

Invoices contain all the details of regular invoices and can be used as reminders. Maintaining customer relationships is easier with this tool.

6. Prevents fraud

The buyer cannot escape payment because the commercial invoice is detailed and can be used as proof.

Requirements of Commercial Invoice

Whenever an international shipment carries a commercial value, a commercial invoice is required to satisfy all customs regulations in the export/import country. The exporter must prepare the document when the goods are ready to be shipped. Taxes may not apply to international commercial invoices as international transactions do not show tax. To avoid any problems at customs, the exporter must ensure that all the required information is provided in the correct format.

Invoices for shipping and export should include the following information:

  • The name and address of the exporter's company, as well as their contact information
  • Contact information for the importer, including the name and address of the company
  • If the buyer is not primarily a consignee, their details are needed.
  • Dispatching method (road, rail, air, or sea)
  • Describe the type of shipment (Full Container Load, Less than Container Load, breakbulk, etc.)
  • Various container types are available, including refrigerated containers, twenty-foot equivalent unit containers, insulated containers, etc.
  • The name of the vessel and the number of the voyage
  • Port names, discharge ports, and destinations
  • Date and invoice number
  • The reference number on the Shipping Bill of Lading document, Marine cover policy number, Letter of Credit number, and Reference number on the Air waybill document [if applicable]
  • A country's name is indicated on the goods' origin label.
  • The goods' destination
  • A description of the terms or method of payment (optional)

Also Read: Detailed Guide On Choosing The Best Name For an Import Export Company

Creating a Commercial Invoice

  • Creating an invoice does not require any specific format. 
  • In addition, it must include all the transaction's primary (but essential) details.
  • Make sure you fill out your invoice carefully. 
  • Even though the sender's tax ID, address, and recipient's information are essential, remember that the sender's or recipient's tax ID should ideally be their Social Security Number.
  • Lastly, mark any columns that don't apply to your shipment with 'NA'. 
  • Be sure not to leave any columns blank.

What is a Commercial Invoice in Export?

A commercial invoice in export is considered as an export document serving as legal evidence for a sale transaction between the buyer and the seller. It is used for clearance purposes with regard to customs and also helps in the determination and assessment of duties and taxes payable.

The exporter has to ensure that all information is clearly stated as the correctly formatted documents to avoid the importer having any issues or delays clearing the goods through customs. You can create a commercial invoice without difficulty, but you may feel that the time could be better spent elsewhere.

Please use pre-designed templates available online to streamline your export operations or use software that automatically generates commercial invoices whenever necessary.

Indian Laws Related to Commercial Invoice

Import and export procedures at the CBIC require submitting certain mandatory documents. Commercial invoices are one of them. By Circular No. 01/15-Customs,

Customs authorities found that a commercial invoice and packing list meet the criteria for proper import or export procedures if submitted, as both documents contain similar fields.

By the Foreign Trade Policy, the following documents are required for import and export activities:

  • Bill of lading/airway bill
  • Packing list and commercial invoice
  • Shipping bill

Also Read: Import and Export Procedures & Documentation Followed in India

Time Limit for Raising Commercial Invoice

Under Indian Law, a time limit for raising a commercial invoice exists. GST laws require that registered taxable persons issue invoices for the supplies of goods subject to taxes indicating the goods' nature, value, and quantity, the tax chargeable on those goods, and any additional information required.

You must raise the invoice before the goods are moved from the supplier's location to the buyer's location if the supply involves the movement of goods. As a result, the invoice must be issued within seven days of the dispatch date.

Packing List Vs Commercial Invoice

A commercial invoice must correspond with the transaction and shipment information packing list. Despite the similarities of the information required on both documents and the fact that they are both issued by the seller/exporter, they serve very different purposes.

A packing list serves a more logistical purpose by describing the physical characteristics of the goods transported. Any dispute or claim with the shipping line, customs, or between seller and buyer for goods requires this document.

Also, the exporter uses it to ensure that all goods are in good condition and order. The commercial invoice contains the financial details, instructions, and terms of sale. Packing lists go to receivers or consignees, while commercial invoices go to those who will pay for the goods.

Proforma Invoice Vs Commercial Invoice

  • Commercial invoices have an accounting value, while proforma invoices have purely informative values.
  • However, commercial invoices are typically used for exports and imports, whereas proforma invoices are used mainly domestically.
  • When you add all the necessary data not included in the proforma invoice, you can use proforma invoices as a base for the commercial invoice.

Important Terminologies Related to Commercial Invoice

To make it easier for you to issue a commercial invoice, listed below are all the necessary terms for shipping and customs:

  • Actual Gross Weight: The total weight of the product.
  • Certificate of Origin: A document confirming the origin of a product.
  • Consignee: A consignee is a person or business that is receiving the goods.
  • Country of origin: Produced or manufactured in the land of origin.
  • Customs: An agency/department that collects taxes on imported goods and checks them.
  • Final destination: The place where the package will arrive.
  • HSN Code: The code used to determine a product's tax rate.
  • Net Weight or Legal Weight: The weight of the goods sold, excluding the importance of the packaging.
  • Payment terms: How much time the buyer has to pay you back and how they can do it.
  • Pro-forma invoice: An invoice prepared before goods are delivered.
  • Reason for export: It can be a sale, a return of goods, a gift, etc.
  • Tariff: Tax imposed on imported goods.
  • Terms of sale: The obligations, risks, and costs of a shipment between the buyer and seller.
  • Tax identification number: Used to identify a company.
  • GSTIN: A Number that identifies a GST-registered company.
  • WTO (World Trade Organization): An organisation that deals with international trade rules.

Also Read: Most Easy Steps in Starting an Import Export Business

Conclusion

The commercial invoice is essential to any international shipment or shipment to a different country's customs area. After seeing what it is, how it looks, and the other fields it needs to contain, creating the correct commercial invoice for export will be easier every time. Create your commercial invoice, or you can use the format in this article. However, a professional software system can automate the creation of commercial invoices based on order details only when necessary.  

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FAQs

Q: Is GST included in a commercial invoice?

Ans:

Yes, GST is included in commercial invoices, as it is required by law, except in certain cases where exemptions have been provided. To charge GST on sales or reclaim GST on goods and services, you must give a valid GST registration and invoice.

Q: If you use the wrong HSN code, what happens?

Ans:

CBP may issue penalties for failing to provide accurate and correct data if the HTS is not used correctly, resulting in an incorrect payment of duties.

Q: What is the purpose of having three copies of a commercial invoice?

Ans:

Customs officers may remove a copy in transit before sending the package, so it is best to print off three copies.

Q: Who is responsible for a commercial invoice?

Ans:

It is usually the shipper (exporter) who issues the commercial invoice.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.