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Contents

  1. 1. What is a commercial invoice?
  2. 2. When do you need to use a commercial invoice?
  3. 3. Why is a commercial invoice important?
  4. 4. What should a commercial invoice include?
  5. 5. How to send a commercial invoice
  6. 6. What is the difference between a commercial invoice and a proforma invoice?

What is a commercial invoice?

October 4, 2021
For any growing small business that manufactures or sell goods to customers, the goal is always to expand your customer base and appeal to new markets. If you are a business that is already established in the UK, the next logical step is to go cross-border and sell your goods internationally.But how difficult is that to do? You need to think about international shipping legislation, costs and having the right documentation so that your goods are able to clear customs.Anyone panicking about the thought of completing mounds of export documents need not worry. The bulk of your administrative work is confined to one document: a commercial invoice. It contains all of the information about the transaction and, if completed correctly, allows your package to be shipped easily to any customer overseas.In this article, we outline what exactly a commercial invoice is, why it's important and what information you need to include.

What is a commercial invoice?

A commercial invoice is an important legal document that needs to be completed by a business when exporting goods and shipping them internationally. It acts as a contract and proof of sale between the seller and buyer, detailing the type, quantity, price and total value of all goods sold. The amount that is listed on the invoice is the amount that your customer is obliged to pay you.A commercial invoice also allows customs authorities to make sure a shipment is legal by determining:
    where it is being shipped to and fromthe type and value of the goodswhat taxes and duties are applicablewhich party is responsible for paying shipment costs, taxes and duties

When do you need to use a commercial invoice?

It used to be that commercial invoices were only required when shipping goods to countries outside of the European Union, but that changed as of 1st January 2021. Following Brexit, all exports from Great Britain to the EU (and to Northern Ireland) are now subject to taxes and duties and need a commercial invoice to clear customs. Now, if you are planning to export to the EU, there are some important additional matters you need to be aware of.

EORI number

The Economic Operator Registration and Identification number is a unique code used to import and export goods to and from the EU. Without this, your goods won't be cleared by customs for shipping. For businesses based in Great Britain, all EORI numbers will start with "GB". If you haven't received your number yet or need to apply for one, then you can do so through HMRC.

CN22 and CN23 forms

Also known as a Customs Declaration, you need to use a CN22 or CN23 form in addition to a commercial invoice if you are sending your shipment via Royal Mail (for any other carriers this is not required). A CN22 form is required for shipping goods up to a value of £270 and a CN23 form is for goods valued above £270.

EU VAT rules for online shopping

As of 1st July 2021, a number of changes have been introduced that affect online e-commerce in terms of how VAT is charged on online sales:
    Goods valued up to €22 are no longer exempt from VAT and will require customs clearance.Businesses selling goods to EU consumers will need to ensure the VAT that is declared is correct for the consumer's country. For goods valued at less than €150, sellers can either charge VAT at the point of sale by registering for the EU's Import One Stop Shop (IOSS) or arrange for the delivery agent to pay the VAT and have the costs charged back to them.For goods valued above €150, there are no changes to how you choose to pay VAT. You can either pay VAT at the point of import or charge your customer the local rate of VAT.

Why is a commercial invoice important?

Quite simply, without a commercial invoice your goods won't reach their intended destination. As stated earlier, the invoice provides information about the seller, buyer and the value of goods, which is used to calculate import duties and taxes. The customs authorities of the country you are exporting to are responsible for checking all imports, and any items without a commercial invoice included won't be allowed to enter. In fact, it is a legal requirement to complete a commercial invoice accurately. This is to prevent delays to shipments and ensure duties and fees on goods are correctly calculated and paid.It's vital when completing an invoice that you double-check all of the information is correct. Not only will mistakes lead to delays in the time it takes for the goods to be shipped (and for the buyer to pay you), but you can also face warnings or penalty fines if customs find that you have declared  incorrect information.

What should a commercial invoice include?

There isn't a set format when it comes to creating a commercial invoice, and you might find it beneficial to create your own commercial invoice template. If you choose to do so, be sure to include the following:

Import and export information

    Full name, address and contact details of the shipper (exporter)Your VAT and EORI numbers (if applicable) to allow you to trade goods internationallyFull name, address and contact details of the consignee (buyer)The consignee's VAT and tax identification numbersDetails of intermediary importer (if applicable)

Details of the transaction

    HS codePurchase order or invoice numberInvoice dateCurrency usedReason for exportDescription of the goods being shipped. This should include a detailed description of what the items are made of and the purpose of their use. Customs officials will often scan packages and can confiscate or issue fines if the description does not match what is inside the package. If your parcel has more than one item in it, you should list all the items in the parcel on a separate sheet and attach it to the invoice. How the goods are being transported and the route they will take, including the final destination.Country of origin (where the goods were manufactured)Number of units of each item and their valueTotal weight (gross weight of the items and the packaging)Net weight (weight of the items without the packaging)A declaration stating "I declare all of the information to be true to the best of my knowledge."Signature and date

HS codes

HS codes, or Harmonized System codes, are used to declare the type of goods being exported and imported so that customs authorities know what duties and taxes to apply to items. There are over 5,000 different codes that correlate to a whole range of goods, each one identified by a six digit number.If you are unsure which code to use, the original manufacturer should be able to help you, or you can look up the trade tariff. It's important you input this correctly, as entering the wrong code could result in extensive shipping delays and the risk of paying customs duties that far exceed what you were expecting.

Incoterms

The International Commercial Terms are a set of 11 internationally recognised rules regarding the transportation of goods. They seek to simplify the import/export process by establishing what responsibilities the seller and buyer have. They clarify:
    which party is responsible for arranging transport and paying the shipping costswhich party is responsible for paying insurance costs and customs dutieswhich party is responsible for the goods along the journey and at what point the shipment is transferred from the seller to the buyer
The terms are updated every ten years, with the latest change having taken place in 2020. Seven of the rules relate to any mode of transport and the other four rules specifically relate to transport by sea and inland waterways. The International Chamber of Commerce has a full list of the terms, as well as a summary of the most recent changes.It's important you know the terms to use. Not only does it confirm who is responsible for goods at each point of their journey but it also acts as a legal agreement if you do experience any issues with the shipment.

How to send a commercial invoice

After you've added all the relevant information, dated the document and signed it, you need to include three copies with the shipment. A copy is required for:
    the country you are exporting fromthe country you are shipping tothe customer
The copy for the customer should be placed inside the package and the other copies should be placed inside a packing list envelope and attached to the outside of the package. We also recommend retaining a copy of the commercial invoice for your records. Knowing what information you have recorded and signed your name against can be vital if any complications do arise with the shipment. If you are VAT registered, retaining the details of your exported goods also helps when it's time to complete your VAT return.

What is the difference between a commercial invoice and a proforma invoice?

The main difference between these documents is that a proforma invoice is used for a quote or an estimate of the cost of an order, while a commercial invoice contains the final agreed details of a sale.They look very similar and include much of the same information; however, the proforma invoice is issued after an initial inquiry from a customer. At this point, the details of the sale are not final and the cost of the goods can still change. Once a customer accepts the terms of a sale, the commercial invoice is issued. It is a request for payment from the customer and lists the exact type, quantity and value of the goods ordered.SummaryA commercial invoice is the most important document you'll need when shipping goods internationally. Without it, your packages won't clear customs and your customers won't receive their items. Be careful to always include the necessary fields on the invoice and ensure the information is accurate. Any mistakes can can lead to lengthy and costly delays.
Fred Princewill
Fred PrincewillJunior Accountant

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