A commercial invoice is an invoice created for customs officials rather than just for end buyers. This means that commercial invoices are only used when goods are exported. Businesses must use commercial invoices correctly. If they don’t, they risk goods being impounded. This can result in avoidable delays as well as higher costs.
Examples of commercial invoices
When a merchant based in the UK sells to buyers in the mainland UK, they simply provide their buyers with a regular invoice.
When they sell outside the mainland UK, they send a commercial invoice. This contains the same information as a regular invoice plus extra details that help customs officials to process the shipment.
All shipments should have three copies of the commercial invoice. One should be placed inside the box with the goods. This is for the customer. The other two should be on the outside of the box in a packet-listing envelope. These are for the customs services in the country of origin and the destination country.
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The content of commercial invoices
Just like a regular invoice, a commercial invoice needs to specify who is shipping what to whom. It also needs to specify who is paying the costs of the shipment, including any applicable taxes, and who is accepting the risks involved in shipping the item(s).
Identifying the shipper
If you are shipping internationally, you will need an EORI number (for Northern Ireland, this is a XEORI number).
Identifying the goods
The description of the goods is largely the same as for a VAT invoice. The key difference is that you also need to include an HS number. HS stands for Harmonized System. It’s a globally-agreed list of commodity codes used to identify items exported from one country to another.
There are over 5,000 groups to choose from, so choosing the right codes may be bewildering. However, most businesses will probably end up using the same code(s) repeatedly. Even if you don’t, you’ll soon get the hang of them.
If you’re buying goods to export, you could simply ask the original manufacturer what codes they use/recommend.
Identifying the receiver
This is essentially the same as for any invoice. It is, however, arguably even more important to make sure that the details are correct.
Specifying shipping terms
When you send a shipment internationally, specify Incoterms. Incoterms stands for International Commercial Terms. These are pre-defined agreements on who pays for what aspects of shipping and who accepts what part of the shipping risk.
The International Chamber of Commerce defines Incoterms. They are updated every decade, but the last update was in 2020. This means that the current Incoterms options will be in place until 2030.
The Incoterms need to be agreed between the sender and the receiver. They then need to be declared on the commercial invoice.
Commercial invoices vs VAT invoices
Commercial invoices are used for the same purposes as VAT invoices. The key difference is that commercial invoices are used when an international buyer needs documentation to satisfy their tax authorities. VAT invoices are required when a buyer in the UK needs documentation to satisfy HMRC.
NB: At present, businesses in the mainland UK must use commercial invoices when shipping goods to Northern Ireland. This is subject to change. Therefore, businesses sending goods to Northern Ireland should make sure to stay on top of current rules.
Commercial invoices vs proforma invoices
Commercial invoices look almost identical to proforma invoices. The key difference between them is that proforma invoices are estimates rather than exact figures. Proforma invoices give customers an idea of what they could expect to pay if they purchase.