Understanding Commercial Invoicing in 2024

If you do business in international markets, then you know just how important getting documentation right is. Certificates of origin, export (or import) licenses, customs declaration… The list is seemingly endless. 

That documentation can get even more complicated depending on the nature of the goods. If you’re exporting (or importing) goods such as hazardous materials or livestock, you need even more documents or your goods are going nowhere. 

One aspect of documentation that is crucial to both the logistics side and the accounting side is commercial invoicing. But what is a commercial invoice, exactly? And how can commercial invoices help a business in areas such as cost allocation and tracking?

What is commercial invoicing?

Unlike your standard business invoice, a commercial invoice wears many hats and is specifically for shipments of goods that cross international borders. There are various roles that a commercial invoice fills. These can include:

• Confirmation to customs of the legality of the shipment. 
• A legal document that sets out the details of the goods and how much the buyer (receiver) has to pay for those goods. 
• A bill from seller to buyer.
• Any details relevant to the country the goods are being shipped to.
• It facilitates international shipping by providing essential information needed for global transport logistics and compliance.

It should be noted that there is no standard format for commercial invoices. The format and contents of any invoice will vary according to the requirements of both the country of export and the country the goods are being imported into. Those requirements can include details and language used. 

Why use commercial invoicing?

The Harmonized System (HS) of Tariffs is a standardized method that classifies goods that are traded internationally. It is recognized by more than 200 countries and is used by customers when they assess any customs duties or taxes to be paid (and also for gathering data). 

By using commercial invoices, you are ensuring that any goods you are shipping are properly classified under the HS, and that the relevant duties and taxes are paid. If goods are shipped without a commercial invoice, they may be rejected or seized by customs. 

What should your commercial invoice include?

While some of the contents of your commercial invoice will vary according to the destination country’s laws and required language, most elements have been standardized by the HS. Knowing those common details can help you make commercial invoice processing easier. 

Those standardized elements include:

1. Contact details. Information about seller and buyer including company name, main contact name, business address, and contact details such as phone number. 
2. Goods details. Detailed information about the goods being shipped, the quantity of goods, and the value and cost/price of the goods (the latter on a per unit basis).  
3. Shipping details. Where the goods are departing from and the destination port. It should also identify how the goods are being shipped, the shipping route, and the delivery date that has been agreed. 
4. Terms of sale. Are the goods CIF (Cost, Insurance, and Freight) or FOB (Free On Board)? 
5. Invoice details. When was the commercial invoice issued and what is its specific reference number? 
6. Terms and conditions. You should include any agreed-upon terms and conditions. 

How to create a commercial invoice?

So, you know the main elements included in a commercial invoice thanks to HS standardization. The two main variations of that format that may occur are when a destination country requires the invoice in another language and when its customs authorities have specific requirements. 

Get started now with the free invoice generator from Billdu to create professional invoices in minutes!

Your accounting department or team will have the main responsibility for drawing up invoices but they need all the relevant information to complete it before sending it to the other party. Good collaboration between all relevant parties on your side is essential. 

1. Header

Just as you might use a headed notepaper for sending letters, so should your commercial invoice be headed. It’s essential that it is identified as a commercial invoice and you should also add your business logo if you have one. 

2. Seller

You should include all relevant details about your business. That includes company name and address as well as email address and phone number. Ideally, you should identify a point of contact in case of any queries as well as a TIN (tax identification number) if applicable. 

3. Buyer

As with seller details, include the same information for the buyer. Ensure that any required information for the destination is also included. 

4. Shipping

Your commercial invoice should feature all shipping details. If the delivery address differs from the buyer’s company address (for example, if the goods are going to a warehouse), then include that in this section. 

It should also clearly list the logistics company undertaking the shipment and any associated freight forwarders, if applicable. Also include the proposed date of shipment and the expected arrival date. 

5. Invoice details

The invoice should have a distinctive reference number and the date the invoice was generated. This makes it easier for project management or accounting software to track it or to refer to it in case of any dispute. 

6. Product

You and the buyer may know precise product details but both the shipping company and customs authorities need to know, too. You should include the following:

• Detailed description. Your packing list should include materials, the purpose of the goods, and any other relevant details such as whether the goods are hazardous or require specialized storage during shipping.
• The HS code for the goods. This helps with customs classification. 
• Quantity. Total quantity of all goods being shipped (if more than one product, then the quantity of each item is needed).
• Price. You must include the unit price and the total value of the shipment.
• Currency. While the US dollar is often the preferred currency for international trade, you will find that some buyers and sellers may prefer to carry out transactions in other currencies, so you must always state the currency being used. 

7. FOB vs. CIF

This is an essential part of your commercial invoice. If your agreement says that it is under CIF (cost, insurance, and freight), then the seller is responsible for all costs, goods insurance, and damage or loss. 

A FOB (free on board) agreement moves various types of financial risk to the buyer, and the seller is only responsible for loading and transportation costs at departure, and any damage or loss of the goods until they are loaded onto transportation.

8. Terms of payment

Part of your commercial invoice should identify the agreed payment terms. This includes the ‘when’: on receiving goods, within 30 days of receipt (or of invoice), etc. It should also identify the ‘how’: payment by bank transfer, credit card, and so on. 

9. Additional charges

If there are any additional charges incurred beyond the usual ones, they should be listed on the invoice. These can include things such as packing costs or any special requests made by the buyer. 

10. Additional information

If there is any other relevant information not covered by existing sections, be sure to list it. This could cover special export or import licenses needed or any permits or certificates needed by either party. 

11. Totals

While you have already included costs and currencies in other sections, there should be a clearly defined total listed. This should be a total of all charges incurred, including the cost of the goods and all other associated costs. It should also state (again) the currency being used. 

12. Declaration

To finish your commercial invoice, you need a declaration that all the information contained in it is accurate. The declaration should be dated and signed by someone authorized to do so – for example, by the sales director.

Consider creating a template

As you can see, each commercial invoice needs a lot of information. It may be fine for a smaller business with the occasional international transaction to create one-off invoices, but larger businesses – or any business doing a lot of international trade – will want to save time. 

With so many business processes such as paycards now streamlined (and often automated), it makes sense to have invoice templates that you can quickly access and adjust as needed. If you see international trade as a regular thing, how can you best develop templates that suit your business? 

1. Identify patterns

Look at your sales data and identify if there are any countries you export to more than others. If there is one country that accounts for most of your exports, then use the requirements for that country as the basis for your main template.

If you need an invoice templates tailored for theUK, NZ, Australia, or Canada, download it here.

2. Develop the template

You need a sample template that can be adjusted if and when needed. It should be easy to fill out (and to read) and should contain all the relevant sections. If you’re regularly sending goods to more than one country, you could develop a template for each.

3. Research and verify

You need to be sure that all the details in a template are accurate. This means researching any specific requirements of the destination country and verifying those details with the seller. Have your template checked by others so that all the details are accurate.

4. Translation

If you’re regularly dealing with an ESL (English as a second language) country, you should consider having any template translated into the main language of that country. In some cases, there may be an agreed lingua franca and you can use that instead. 

One major benefit of translated commercial invoices is that they can expedite customs clearance. Some countries may also require that invoices be in their native language. A best practice is to have a copy in each language included with the shipment. 

5. Copies

When it comes to using the template, you should make several copies. As well as having a copy for your records, you can fax or email a copy to the buyer for their records. This ensures you have an easily accessible record of the agreement should any dispute arise. 

Cost tracking and allocation with commercial invoicing

Cost tracking

Businesses need to keep a close eye on their costs as this can affect their bottom line and profitability. Doing business internationally can increase those costs so you must keep an eye on what your outgoings are. 

You can view any international transaction of goods as a singular project. Cost tracking is concerned with how financially healthy that project is and lasts from inception until the ‘project’ is successfully concluded.

By closely tracking all associated costs, you are more likely to increase revenue and profit margins. You can identify where there are high costs and see if there is any way to decrease those costs. Of course, some costs are fixed (or relatively so) and unavoidable. 

Implementing dynamic pricing strategies can be particularly effective in this regard, allowing businesses to adjust prices based on various factors such as market demand, competition, and cost changes. This flexibility can help maximize profit margins and adapt to market conditions more swiftly.

In addition, utilizing specialized financial reporting software for cash flow management can provide real-time insights into financial health, enhancing decision-making and further optimizing cost tracking and allocation efforts.

As well as the legal aspects, commercial invoicing allows you to track all costs associated with that particular deal. Understanding the business to business customer journey in this context can enhance relationship management and ensure smoother transactions. The higher the costs, the narrower your margins may be, so this is something you should monitor closely. 

Cost allocation

When you are planning a project, you also need some idea of what costs to allocate. While sending goods to a new market may incur slightly different costs, having historical data from previous commercial invoices is going to help allocate costs for new projects. 

Any project management should have a strong focus on cost tracking. A commercial invoice will lay out the responsibilities and costs you will have as the supplier (seller) or as the receiver (buyer). Cost tracking is important when you look at financial forecasts or projections. 

One initial cost of doing business internationally is communication. It would be very unlikely that a deal would be agreed on one call so you have repeated audio calls, emails, and even videoconferences. 

One way many businesses reduce those costs is to use an IP telephone system. IP telephony (Internet Protocol telephony) can minimize any costs associated with calls to international customers as well as offering faxing and video conferencing capabilities.

In the realm of improving internal operations and ensuring consistent training across international branches, businesses may employ tools to convert videos to MP3. This allows companies to create more accessible audio-only versions of training and informational content that can be easily distributed and utilized by teams worldwide, ensuring that all employees, regardless of location, have access to the same resources and information.

Putting communication costs aside, you will start looking at cost allocation during the contract negotiations. One of the major elements of any deal will be agreeing on whether the goods are FOB or CIF. 

If FOB, your costs will be greatly reduced and thus any profit margin can be increased. When your buyer is shouldering costs such as shipping and insurance (as well as post-loading loss or damage) then it gives you more room to negotiate a favorable price. 

Conclusion

Getting the details in a commercial invoice is essential. Failure to do so could result in delayed shipments, seized goods, or even financial penalties. It’s a legal document both in terms of being legally binding between parties and also as an export/import requirement. 

Knowing the costs you incur as a buyer or seller also helps you track the project’s costs. Those costs will be a major factor when it comes to profitability. If there is little profit (or a loss), is there any real point in proceeding with the sale? 

If you are doing any level of international trade of goods, then efficient commercial invoicing has to exist. If you are using a Word, Excel or PDF template, be sure that every box is ticked and that any special terms and requirements have been researched, confirmed, and included.