What is a commercial invoice (and how to raise one)
Making your goods available internationally is an exciting milestone. Naturally, you want the process of shipping your products to your overseas customers to run as smoothly as possible.
This means accurately filling out a commercial invoice, which is regarded as the most important legal document surrounding international trade.
Why? Because a commercial invoice outlines the details of the transaction between exporter and buyer and is meticulously analysed by customs to control imports and ensure the right amount of tax is paid.
Complications from inaccurately completed commercial invoices can result in delays, cancelled shipments, or even legal ramifications.
So, how can you ensure your commercial paperwork is in tip-top shape and that your customers receive their goods in the agreed timeframe?
In this guide, we’re going to dive further into exactly what a commercial invoice is, when and how to correctly raise one and how Brexit may affect your exporting activities.
Table of contents
- What is a commercial invoice?
- How to fill out a commercial invoice
- How to avoid common mistakes when filling out your commercial invoice
- How Brexit affects commercial invoicing
- Wrapping up
What is a commercial invoice?
A commercial invoice is an important document containing information about the goods you plan to ship.
It allows customs authorities to understand:
- Where the package came from and where it’s going
- How to classify your goods and thus apply the applicable duties and taxes to your package
- The reason that you’re shipping the items
- How much the goods are worth
- Who is paying for the shipment and applicable taxes
- Who you are (via identifiable VAT or EORI numbers) to ensure you are a legally recognised international trader
- Specifically what is in the package, delineated by line-item descriptions, gross and net weight of each item as well as the total package weight, type of package, etc.
Note: We’ll go into more specifics on what’s included in a commercial invoice and how to fill yours out accurately in the next section.
Filling out your commercial invoice correctly will help to:
- Ensure you, the shipper, pay all required taxes and fees
- Prevent shipment delays, as accurate paperwork will help your exporter process your package quickly
- Keep you in check legally, as failure to provide accurate commercial information leaves you liable to warnings or fines (which vary in seriousness and amount)
Here’s an example of what a commercial invoice looks like:
When do I need to raise a commercial invoice?
A commercial invoice is required for any shipment that travels outside of the EU. It is used as a customs declaration and is provided by the exporter (shipper).
In other words, every single time you ship a package from the EU to a country that is outside of the EU, you need to fill out a commercial invoice.
Note: There are some exceptions to this as certain countries, such as Gibraltar and San Marino, are members of the EU but do not fall within EU customs territory. To see a complete list of the EU countries and certain territories wherein VAT and export rules either do or do not apply, visit the European Commission Taxation and Customs page.
What’s the difference between a proforma invoice and a commercial invoice?
The purpose of a proforma invoice is to help buyers decide if they want to place an order.
A proforma invoice is almost identical in appearance to a commercial invoice, however it is not considered a final invoice. Sellers issue a proforma invoice to outline the cost of goods and services to a potential customer. This way, the buyer can see if the sale is within their budget.
Here’s what a proforma invoice looks like:
The purpose of a commercial invoice, on the other hand, is to request payment for a completed sale of goods.
Once accepted by the customer, a commercial invoice acts as a legal document and details the amount owed to the seller.
Top Tip: Before completing a sale, it’s important that you’re aware of all the different types of invoices and how they function. To learn more about how each invoice works, read our in-depth guide to what an invoice is and how to raise them and get paid💡
Do you need to keep records of commercial invoices?
Yes, it’s important to keep records of commercial invoices and any customs paperwork.
If you’re VAT registered, you’ll also need to record your exported goods in your VAT account. This is important, as you’ll want this information readily available when it comes time to complete your VAT return.
How to fill out a commercial invoice
To ensure that your package makes it through customs and to your buyer, it is crucial that you are meticulous when filling out your commercial invoice. If you fail to provide all relevant information, your shipment will likely be delayed by customs authorities.
Here’s a detailed rundown of what you need to include:
Accurate product information
Provide a detailed description of what you are shipping to ensure customs authorities are aware of the entire contents of your package.
Outline each item by:
- Description of goods
- Net and gross weight
- HS code (we’ll describe what this in in a moment)
- Location of origin
You’ll also need to disclose the total:
- Number of items
Additionally, you’ll need to include the type of shipment container (i.e. box, carton, etc.).
Country of origin
Customs authorities have to be vigilant when determining a package’s country of origin. This is because trade agreements, import and export duties vary from region to region. Verifying the country of origin ensures the correct application of import duties and shipping fees.
The International Commercial Terms (ICC), founded in 1919, are a global agreement on the transportation of goods. In essence, Incoterms serve to reduce shipping confusion between international buyers and sellers by standardising rules and guidelines on a universal level.
Incoterms between parties outline:
- The point of delivery. This process defines the stage (i.e. EXW) at which the shipment is transferred from the hands of the seller to the buyer (we’ll explain these common terms in a moment).
- Transportation costs. The Incoterms determine which party pays for each stage of the transportation process.
- Insurance costs. The Incoterms decide which party will cover insurance fees for the shipment.
The various Incoterm options are updated every 10 years, with the most recent update occurring in 2020.
Here is a list of the most common Incoterms and how they work:
- Ex Works (EXW). The seller makes the goods available at a predetermined location. The buyer takes over all transportation costs and bears the risks of bringing the goods to their final destination.
- Free on Board (FOB). The seller loads the goods onto the ship. Costs and risk are then divided between the parties.
- Cost and Freight (CFR). The seller must pay the costs to bring the goods to the port of destination. Risk is transferred to the buyer as soon as the goods are loaded onto the ship.
- Delivered Duty Paid (DDP). The seller is responsible for delivering the goods to the nominated destination of the buyer, and pays all transport costs until that point.
- Delivered at Place (DAP). If you’re unsure which Incoterms work best for you, it’s best practice to stick with DAP. Here, the shipper will take care of international shipping costs, insurance and export documents and the importer will pay all customs and import duties. This is the most simple way to organise shipments.
Understanding Incoterms is vital, as they outline the responsibilities of all parties involved in a trade and are recognised by global authorities and legal agreements.
Here’s some more information to help you fully understand Incoterms:
- To see the full list of the latest terms, rules and responsibilities visit ICC’s Incoterms 2020 page.
- For more information about why Incoterms are important and how they work, see this detailed guide.
- To help understand how the principles of non-discrimination apply to trade, visit the World Trade Organisation’s Principles of the Trading System guide.
Does Incoterms apply to shipping services?
It’s important to note that contracts in services cannot use Incoterms, as Incoterms do not apply to delivery of services. Buyers and sellers delivering services (such as a construction project in another country) must instead define:
- The services being provided
- The standard to which they will be completed
- How you will handle customer dissatisfaction
- How you will apply the principles of non-discrimination
Developed by the World Customs Organisation, the Harmonised System code is implemented so that customs authorities can correctly identify goods being imported and exported and charge the appropriate tariffs and fees.
The HS system is used by hundreds of countries, which explains why over 98% of globally traded merchandise is classified in terms of the HS.
The HS comprises more than 5,000 commodity groups and each one is identifiable by a six digit numeric code (i.e. 0901.21). Each item in your shipment must be labelled with the appropriate HS (also referred to as commodity) code.
Where can you find your HS code?
In many cases, the original manufacturer of the items you’re shipping will be able to provide you their HS codes.
If this isn’t an option, you can look up commodity codes on the GOV.UK Trade Tariff lookup page. Alternatively, contact the tax authorities for assistance.
Adding the commercial invoice to your shipment
When shipping from the UK, you’ll need to provide a commercial invoice for:
- The country you’re shipping to
- The country you’re shipping from
- The customer
It’s vitally important that you:
- Secure two of the copies in a packet listing envelope on the outside of the package
- Place the third copy inside the package for the customer
Don’t forget to retain your own copies of your commercial invoice. These will come in handy if complications arise down the line and provide valuable information that you’ll need for your VAT return (more on this in a bit).
Additionally, ensure your package is:
- Strong with the flaps intact
- Sealed with tape suitable for shipping
- Packed with sufficient padding such as bubble wrap
Securing your package and its contents as well as correctly labeling your shipment will protect the integrity of the goods and ensure your package passes through customs.
How to avoid common mistakes when filling out your commercial invoice
While understanding how to fill out your commercial invoice is important, learning how to avoid making common mistakes is invaluable.
Here’s where things can go wrong, and how to get it right:
- Wrong contact information. Having the wrong contact information on your invoice can lead to communication difficulties. Verify contact information with your buyer before proceeding with orders.
- Wrong address. If you include the wrong address on your invoice, your shipment might end up stuck in a warehouse or delivered to an incorrect location. Double check delivery addresses with your buyer before proceeding with the shipment.
- Inaccurate packing lists. If a customer wishes to examine a particular item, and you have incorrectly labeled your packages, they will potentially have to ruffle through the entire shipment. Make sure each package is labeled correctly to save time and grievances.
- Incorrect classification of goods. Mistakes when applying HS codes to your items can cause shipment delays. Make sure you label each item correctly to ensure the correct tariffs are paid.
- Incorrect value. When filling in the value of goods you are exporting, use the value you are selling them for. If you’re not charging for an item (for example, you’re sending free samples), include the market price of that item.
- Incorrect currency fluctuation. Currency fluctuations can cost the buyer or seller. For example, if you charge your customer in pounds, they might not want to take the risk of paying more for their order due to currency fluctuations. Avoid this by setting the rate of exchange on the day of payment, charging extra to cover potential losses or accepting payment into a foreign currency account.
- Inaccurate product description. Providing vague and/or misleading descriptions can lead to complaints and cancelations. It’s important that the buyer receives a detailed description of the goods and services they are paying for.
- Incorrectly packaging and labeling dangerous goods. Mislabeling dangerous goods can potentially have disastrous consequences, especially if goods aren’t packaged and handled safely. For further information visit GOV.UK’s shipping dangerous goods page.
- Wrongly assuming your goods qualify for free trade. If you wrongly label your goods as eligible for duty free treatment, you’re committing fraud. This can have consequences for both you and your customer, as they may incur extra charges on delivery of the goods. For more details, head over to GOV.UK’s trade agreements page.
What to do if your commercial invoice has a mistake?
If you realise you’ve made a mistake before you ship your invoice, simply correct the error and send it away.
But if you catch a mistake after you’ve shipped your commercial invoice, you cannot amend it. That’s because it’s now considered issued and binding.
That said, all is not lost. If you’ve shipped your invoice but your customer hasn’t yet paid, you can contact them to let them know there was an error and ask if you can send an updated invoice their way.
If they have already paid, you’ll need to adjust a future invoice with a note that corrects the error.
How Brexit affects commercial invoicing
Businesses that sell internationally are no doubt confused about the implications of Brexit on their trading activities. Let’s unpack how Brexit affects international exports and what you need to do to stay compliant.
Top Tip: When selling to customers outside of the UK, you’ll also need to consider export VAT. That’s because the rate that you charge your customers is determined by several factors, including if they are VAT registered themselves and where they are based. To learn more, read our guide to VAT rules and rates on exports 📭
UK EORI number
If you’re a UK business that exports and imports goods to and from the European Union, you’ll need an Economic Operator Registration and Identification (EORI) number.
As a result of Brexit, shippers and receivers trading between the EU and UK will require an EORI number for their respective countries.
For example, if you’re a UK business sending a shipment to a buyer in Portugal, you will require a UK EORI number and the business you’re shipping to will require an EORI number registered in Portugal.
Note: If you haven’t done so already, you can apply for your EORI number on the GOV.UK website.
CN22 and CN23 forms
Also known as a customs declaration, a CN22 form is a customs document declaring the contents of your shipment. It is only necessary to include a CN22 form when using a postal service (Royal Mail, for example) to ship from the UK to the EU.
From the 1st of January 2021, the date that Brexit went into full effect, all postal shipments from the UK to the EU now require a CN22 or CN23 form as well as a commercial invoice.
Which form you need to use depends on the value and the weight of the package (which determines its monetary value). You will only ever need to use one CN form type per shipment.
A CN22 form is required for shipping goods to the EU up to the value of £270.
A CN23 form is required if the value of the goods exceeds £270 pounds.
You can obtain a CN22 or CN23 form from any Royal Mail post office branch in the UK.
Your business’ survival relies on efficient delivery of goods and services to your customers. It would be a shame to let something as trivial as incorrect paperwork get in the way of your sales.
By correctly organising and filling out your commercial invoices, you’re one step closer to providing a seamless service to your buyers and a steady flow of income to your business.
Invoicing is FREE for all Tide members
Wouldn’t it be nice if you could get paid easily? With Tide invoicing, you can! Quickly send customisable invoices directly from the Tide app, and then get on with doing what you love. It’s just one reason over 300,000 businesses recommend Tide – open a Tide account today and give Tide Invoicing a try 🚀
Description: A description of the goods you are sending, the material they’re made of, etc.
Seller information: The full name, address and contact information of the supplier (you)
Buyer information: The full name, address and contact information of the person or company you are sending the package to
Date: The date you sent the shipment
Invoice number: The invoice number for the order
Purchase order number: The order number or reference number of the item
Currency: The currency used for the order
Country of origin: The country the goods originated from
Final destination: The final destination of your package
Travel arrangements: The shipping company you are working with and the route your shipment will take
Incoterms: The terms of sale between the buyer and the seller
Payment terms: The terms of payment between you and the seller, for example, due dates and payment methods
Hs code: The HS or commodity code
Value: The value of each item
Net quantity: The total number of items to be shipped
Net weight (KG): The net weight of the shipment
Net value: The total value of the shipment
Signature: All necessary signatures (including yours) to authorise the shipment
Extra info: Any extra shipping instructions
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