FOURAH BAY COLLEGE UNIVERSITY OF SIERRA LEONE

FACULTY OF LAW

FINAL HONS TWO-2

INTERNATIONAL TRADE LAW

Assignment

COMMERCIAL INVOICE AND INCOTERMS

STUDENT NAME: ABDULRAHMAN M. DUKURAY

REGISTRATION NUMBER: 31937

TUTOR: MR. ROLAND WRIGHT

 COMMERCIAL INVOICE

INTRODUCTION

International sales of goods differ from domestic sales in a number of ways: they generally
involve long distances—during which the goods are in the custody of the carrier—the risks
involved in such transit are greater, and the transaction is normally irreversible. in that the
physical return of the goods to the seller is in practice unlikely to be a realistic option.
Furthermore, because of its nature, the transaction might be subject to a number of different
jurisdictions with diverse legal systems. To cope with these problems, the business community
has developed a number of standard contracts and rules which cater for the peculiar needs of
international commerce?

DEFINITION: -

A commercial invoice is a document used in international trade transactions that details the
content, quantity and value of a shipment being exported and is used for shipment and clearance
purposes. It is a document necessary for both the seller and buyer, as it helps the seller confirm
that goods have been delivered as contracted and therefore the seller has right to claim payment;
whereas the importer can use it for customs clearance purpose, since it is often used by customs
authorities the true value of imported goods for assessment of duties and taxes. The commercial
invoice is used to record the transaction between the buyer and seller, as it the contain the details
of the price(s), value, and quantity of the goods being sold. A commercial invoice is a billing
document that is sent alongside internationally shipped goods. It is a contract that is entered into
by a seller and buyer of physical goods and is used by customs agencies to determine the amount
of tax that should be charged. It clearly outlines what is being shipped, the parties involved
(recipient and deliverer), where it is going, and how much the customer is required to pay for the
goods, among other pertinent information.

A Commercial Invoice is an important trade document that is used in Global Trade and shipping.
When products are shipped Internationally the shipper must provide the Consignee (importer)
with a detailed Commercial Invoice template and other shipping documentation.

The template for a Commercial Invoice will contain all important information and instructions
for importers, freight forwarders, customs, agents and banks (if required) to use during the import
export process. The Commercial Invoice will contain product and transactional information, HS
codes, Incoterm®, details of the exporter & consignee and shipping details such as type of
shipment, port of loading and port of discharge.
HOW TO COMPLETE A COMMERCIAL INVOICE: - There is no internationally accepted
standard format in use which explains how to prepare a commercial invoice. However, it is
recommended to refer to credible sources for country specific regulations that guides the
procedure or format of filling commercial invoice before preparing it for a new export location.
The standard requirement for commercial invoice however requires for commercial invoices to
be in writing and signed by the exporter and addressed to the importer, in order to comply with
regulatory standard.

What is a Commercial Invoice used for?

When products have been shipped Internationally, the Exporter will create a Commercial Invoice
template and other shipping documentation and share them to the importer.

The importer will use the Commercial Invoice template, packing lists and other shipping
documentation to get the products cleared through customs in the country of import. It’s
important that the template for Commercial Invoice contains all relevant information to avoid
importers having any issues or delays when clearing the goods through customs.

A Commercial Invoice must be provided for all sea freight and airfreight shipments. For
example, if you are sending airfreight shipments with FedEx or DHL you will have to provide to
FedEx a Commercial Invoice, or provide to DHL a Commercial Invoice.

Note that a Commercial Invoice is issued after the goods have been delivered or shipped (post-
shipment). In some cases, exporters will provide a Proforma Invoice before the goods have been
shipped (pre-shipment), then provide a Commercial Invoice post shipment.
As mentioned above, it’s important that exporters include all information on the Commercial

Invoice template to avoid having issues or delays when transporting the goods and when clearing

through customs in the country of import. We’ve split the Commercial Invoice into sections to
make it easy to understand where relevant information is required. Starting at the top left is the

details of the Exporter of the goods:

1 – Exporter’s Details

This includes basic company contact information including company name, logo, address, phone
numbers and personal contact details.

2 – Consignee & Buyer (if not Consignee)

This includes basic company contact information including company name, address, phone
numbers and personal contact details.

3 – Shipping Details

Important shipping and logistics details are included to help the consignee, logistics companies
and customs brokers to correctly arrange the transportation, customs clearance and final delivery
of goods. Shipping details include:

 Method of Dispatch – Road, Rail, Air or Sea Freight

 Type of shipment – FCL, LCL, Breakbulk or other

 Country of Origin

 Country of Final Destination (where the goods are delivered through to final address)
 Vessel / Aircraft Name

 Voyage No

 Port of Loading (POL)

 Port of Discharge (POD)

 Final Destination (Country)

 Marine Cover Policy No (if applicable)

 Letter of Credit No (if goods are sold under a Letter of Credit)

4 – Reference Numbers & Additional Information

These sections includes reference numbers, dates and additional information:

 Seller’s Invoice number

 Date (when invoice is issued)

 Bill of Lading Number (if known)

 Buyer reference number (usually the buyer’s Purchase Order number)

 Additional Reference (if needed)

 Terms/method of payment (the methods of payment and payment terms, i.e. 30% deposit,

70% balance upon Bill of Lading)

 Additional details (any packaging, delivery notes or additional details)

5 – Product Details

The exporter will add a detailed list of the products that have been sold. This includes important

information such as:

 Product Code (unique product reference number)

 Description of goods (detailed)

 HS Code (to classify goods through customs clearance)

 Unit Quantity

 Unit Type

 Price (per unit type)

 Any additional fees or charges (usually mould, setup fees, transport costs or taxes)

 Incoterm® & Place – The selling term and place agreed between the buyer and seller

 Currency of transaction
6 – Bank Details

The seller’s detailed bank information. This usually includes:

Beneficiary Details

 Beneficiary Business Name

 Beneficiary Business Address

Payee Bank Details

 SWIFT Code (Bank ID). Each financial institution in the SWIFT network has a unique

SWIFT code that is between 8 and 11 characters. This is known as a SWIFT ID or a bank

identifier code (BIC). For example, to make a Bank of America wire transfer, the

Bank of America SWIFT code is BOFAUS3N

 Bank Location (Country)

 Bank Location (City)

 Bank Name

 Intermediary Bank Details (optional). If the seller uses an Intermediary bank to accept

payments, the Intermediary bank details should also be included, i.e. SWIFT Code (Bank

ID) Bank Location (Country), Bank Location (City), Bank Name.

 IBAN – International Bank Account Number

7 – Authorized Signature

To finalize the document, the seller can add their signatory details:

 Place of issue

 Date of issue

 Signatory Company

 Name of Authorized Signatory

 Digital Signature (using IncoDocs, sellers can draw or upload their digital signature)
  Digital Company Stamp (using IncoDocs, sellers can create or upload their digital

company stamp or seal)

Difference between customs invoice and commercial invoice?

Commercial invoices are commonly used by small businesses that sell products to consumers.
Therefore, they are used in cases where the payment has already been made for the goods. It
serves as documentation for customs purposes.

On the other hand, large volume importers and exporters who usually deal with other businesses
are used customs invoices. Just as a commercial invoice, the customs invoices contain all the
details necessary to sort out the customs formalities.

Who issues a commercial invoice?

The seller or the exporter issues commercial invoices to the buyer or the importer. The invoice
acts as proof of sale.

What does HS mean on a commercial invoice?

The Harmonized System is a method of classifying traded products used by customs authorities
all around the world. This enables them to assess the duties and taxes leviable on products and
services.

What should be on a commercial export invoice?

Full details of the seller and the buyer, details of the goods supplied (quantity, price per unit, total
amount), shipping details (country of origin and country of destination) should be included in a
commercial export invoice.

Do all countries require a commercial invoice?

Shipments of any kind outside the European Union require a commercial invoice. It is a customs
declaration provided by the exporter. Countries within the European Union do not require a
commercial invoice

TYPES OF COMMERCIAL INVOICES

1. Proforma Invoice. The “Pro” in “Proforma” refers to the fact that is an invoice delivered
to a client prior to a transaction being finalized. It lists the included items and total value
of a shipment prior to reaching the customer.
 2. Blank Commercial Invoice. A general-use commercial invoice that can be customized to
meet the needs of the company shipping the goods. For making changes to the document,
the Word (docx) version is recommended.
3. FedEx Invoice. A two (2) page document used by sellers for shipping with Federal
Express (known as “FedEx”). The form needs to be completed, printed out, and inserted
with all shipped packages.
4. UPS Invoice. Must be included in each and every shipped package that is heading out of
the United States. Used for shipping with UPS only.
5. DHL Invoice. Contains information on the parties, the contents of the package(s), their
value (for taxes), where the product(s) were manufactured, their weight (in Kilos), Tax’s,
and more. For use with DHL only.
6. USPS Invoice. The form can no longer be downloaded from the internet, as each form
has to have a unique barcode provided by USPS. The forms can be found at the USPS
Postal Store.

HOW TO USE COMMERCIAL INVOICE

Commercial invoice can be used for the following purposes listed below;

1- Cash in Advance. This can be prepared according to the requirements of the importer nd
exporter.

2- Under Open Account. An open account can be defined as an arrangement between the
buyer and seller whereby the goods are manufactured and delivered before payinent is
required. Open account sales are fairly common in domestic sales, but are less common in
international transactions because they substantially increase the risk for the seller of
nonpayment for the goods delivered to the buyer. In principle, the open account system
should only be used when the seller has complete confidence and trust in the buyer as
well as in the stability of the buyer's country and its import regulations. This type of
payment is very advantageous for the buyer who pays for the goods or services only when
they are received or inspected, but does not provide any assurance to the seller that he
will be paid.

3- Under Documentary Collections. This can be done according to demands of the importer
or exporter and just like is done under open accounts, no third party document
check/validation is required.
 4- Under Letters of Credit. This must be prepared by both parties to the transaction
(importer/exporter), according to the rules governing letters of credit invoicing. This type
of invoice is however required to be checked by a bank for validation.

Exceptions to Commercial Invoice

An invoice exception is a discrepancy between the data on the invoice and the data on the
associated order, contract, or receipt.

Invoice exceptions can represent a variety of issues, such as missing receipts, mismatched
quantities or prices, duplicate invoices, or tax variances. For example, an exception can be the
difference between the quantity ordered on a purchase order and the quantity invoiced.
Exceptions can occur at either the line item level or the header level of an invoice. Header-level
exceptions are information-only except in a few cases, but line-level exceptions must be
reconciled before the invoice can be paid.

The problem with invoice exceptions?

Invoice exceptions are such a big problem for AP departments because each one must be
resolved via human interaction. For some organizations, 100% of incoming invoices result in an
exception, meaning thousands, if not tens-of-thousands of invoices require manual intervention.
Even best-in-class AP departments report that 30% of their invoices result in exceptions. With
such high exception rates, the only way to increase invoice processing speed and decrease cycle
times is to hire more full time employees. Hiring more staff is, unfortunately, only a temporary
fix if your invoice volume continues to grow. More invoices equal more people to process them
and handle the exceptions.

Many businesses are also sensitive to the impact that invoice exceptions have on their suppliers.
Long cycle times put undue pressure on supplier relationships and typically result in inquiries to
AP. Long story short, invoice exceptions are a huge drain on company resources. They pull AP
professionals away from other important tasks and make it difficult to break out of a manual
processing mindset.

What causes an invoice exception?

At a fundamental level, an invoice exception is a communication error. Sometimes the

communication breakdown happens between a supplier and the AP department. In other
instances, invoice scanning solutions make an error that must be corrected. Below we examine
two common causes of invoice exceptions.
Optical character recognition (OCR)?

OCR is a long-standing method of digitizing incoming paper or PDF invoices. It works by

converting an invoice image into an electronic format using a character recognition tool. The
major issue with OCR is that even with the latest and best OCR tools, the character recognition
algorithms often return incorrect information. Most OCR imaging technologies boast accuracy
rates of 98%-99% which, in theory, sounds perfectly acceptable, but will create major problems
for AP departments, as even one wrong character will result in an exception. In recent years
many businesses have invested in electronic invoicing to help reduce invoice exceptions, only to
find they are still manually processing the majority of their invoices due to OCR errors.

No PO, or Incorrect PO information?

By default, any invoice that is not associated with a PO will become an invoice exception. if
there is no way for your system to check if an invoice is valid and approved, how can it be
submitted for payment without a review? Even if you use POs, the vast majority of suppliers are
unable to include PO line information on their invoices, which leaves AP with a constant deluge
of invoice exceptions.

How to fix invoice exceptions once and for all?

The good news for AP is that reducing, or completely removing invoice exceptions is possible,
and easier than you might think. New invoice processing technology uses advanced algorithms,
AI, and machine-learning to automate exception resolution, and remove a great deal of manual
labor from the process. A “smart” processing platform, paired with some small organizational
changes can drastically reduce exceptions, processing time, and cycle time.

Create digital connections with suppliers

A true 100% digital connection with your suppliers will get you one step closer to straight-
through processing and accounts payable automation. As we examined above, OCR read errors
are one of the leading causes of exceptions for most businesses. Creating a digital connection
with suppliers enables them to send invoices in a 100% digital format, which removes any
potential for OCR read errors, and increases both speed and throughput.

However, Modern digital platforms like Transcepta are purpose-built to quickly and painlessly
connect any supplier regardless of technical capabilities. These modern technology platforms
also come standard with a service component that connects and onboards all suppliers to a
supplier network without additional effort from the enterprise. The supplier network enables
instant

two-way digital connectivity, ensuring that all invoice data is received and processed
automatically with no scanning or manual intervention.

Automate exception resolution

As mentioned above, one of the leading causes of invoice exceptions is the lack of PO
information on invoices. This may be because your suppliers are unable to add it, or that your
business simply doesn’t use POs. For businesses focused on reducing exceptions and achieving
100% straight-through invoice processing, this can feel like a major hurdle. Luckily, modern
platforms like Transcepta have solved this issue. Instead of manually coding, routing, and
approving non-PO invoices, you can set up smart workflows that automate resolution.

For invoices that do have a PO, but it’s incomplete or entered incorrectly, modern platforms use
advanced AI and machine-learning algorithms to match the invoice to an open PO#, effectively
removing exceptions caused by human error. By using predictive technology to automate
exception resolution, you can remove one of the most time-consuming aspects of invoice
processing, and take a big step closer to 100% straight-through processing.

Eliminate invoice exceptions with digital invoice processing

If your organization is battling an onslaught of invoice exceptions, it may be time to think about
making the switch to a smart platform that can create a digital connection with suppliers, and
eliminate invoice exceptions. Platforms like Transcepta integrate with your existing ERP and
help your team enable accounts payable automation and achieve straight-through invoice
processing.

Is a Commercial Invoice Always Required?

No, a commercial invoice isn’t required everywhere. The document is only necessary for
shipments across international borders. That means packages being delivered within two states
that are part of the US federal government, for example, from California to Florida, do not
require a commercial invoice. The same rule applies to all countries that are part of the European
Union (EU), since they are also under the same legislation, so movement of goods and services is
free of customs regulations. As for any other type of international shipments, from the US to
Canada, the US to the EU, the US to Asia, and so on, you always need to attach a commercial
invoice.
What Does a Commercial Invoice Include?

While there isn’t a standard format you have to follow to create a commercial invoice, the
document must still cover several details in order to be considered legally binding. Whether you

decide to fill in a premade commercial invoice template or create one from scratch, make sure the
document includes the following elements:

1. Header with Buyer and Seller Information

The very first part of every invoice is the header that includes the contact information, for both
the buyer (importer) and the seller (exporter). The seller’s contact information details include:

 Business name
 Business logo
 Street address
 Phone number
 Postal code + city
 Country

The tax identification number depends on the country your business is located in. For example,
EU countries use VAT (value-added tax), while US countries get an EIN (employer identification
number) or FTIN (federal tax identification number). Then below, or next to the seller’s info, we
have the buyer’s details:

 Full name of the customer or business

 Street address
 Phone number
 Postal code
 City
 Country and tax ID number if you’re selling to another company.

2. Invoice Number & Invoice Date

Every invoice is tracked by a unique invoice number (invoice ID), to avoid duplicate payments
and keep documents well-organized. How this invoice number gets generated is up to you,
however, the most common method business use is sequential.

The sequential approach, as the name suggests, means moving up by one for every new invoice.
For instance, if your very first invoice is 00001, then your next would be 00002, and so on.
Next, you need to specify the payment due date, which might have been previously agreed upon
with the client or stated in the Proforma invoice. If that’s not the case, just go with the standard
billing practice of your business. Don’t want to manually number every single invoice? Invoicing
software can help you by automatically generating your invoice numbers, with every new sale
that is made.

3. Product and Shipping Details

One of the most valuable pieces of information on a commercial invoice is the itemized list of
products that you’re shipping. This information gives the customs department a run-through of
all of the contents of the package, along with their prices. Make sure to always include:

 Item code (SKU number)

 Name and a brief description of the product
 Quantity, that for short can be labeled Qty

Net weight is the weight of the product without the added weight of the packaging. For example,
if you’re shipping a box of t-shirts, the weight of the box is considered packaging weight (tare
weight), and it’s excluded from the net weight. Gross weight includes both the weight of the
product and its packaging. In this case, tare weight (the weight of the box or any other form of
packaging) is added.

Unit price. Usually referred to as Value.

Total price for every line of product.

Subtotal. Once you’ve summed up the totals for every item, add them up together to calculate the
subtotal for the entire invoice. Make sure to be precise when filling in this information, because
any inaccuracies could get you fined.

4. Harmonized System Code

Every product you ship needs to include a Harmonized System (HS) code.

The HS code categorizes merchandise based on its type, purpose, and nature. This way, custom
authorities can easily decide which taxes, tariffs, and other additional excise duties apply to every
product line. The World Customs Organization updates these codes every 5 years, so looking up
the code may result in an inconclusive answer. If that happens, the manufacturer of the product
should know the code. Or you could contact your country’s tax agency for the information.
5. Country of Origin

Another additional detail you have to provide is the country of origin of your products. The
country of origin is basically the place your goods were produced in. There are cases when you’ll
need to attach an additional Certificate of Origin, that customs use to decide whether your goods
are eligible for import, and/or subject to any extra duties.

6. Payment Terms & Terms of Sale

The terms of sale, also known as the Incoterms, are internationally recognized rules that facilitate
trade. These terms help buyers and sellers clearly communicate their contract terms, so there
aren’t any misinterpretations regarding transportation management. More specifically, Incoterms
clarify:

 Which party takes charge of shipping, insurance, and customs costs

 Who arranges transport and up to which point
 Who is liable for the goods at every step of the delivery

After choosing the best Incoterms for both you and your client, the next step is deciding on the
payment terms. Payment terms let the buyer know how much time they have to make their
invoice payment, as well as what payment methods they can use. The most commonly used
payment term in business is net-30, which means payment is due in 30 days, from the date when
the commercial invoice was issued. As for payment methods, it’s best to offer your clients as
many options as possible, such as:

 Cash
 By check
 Credit card
 Online payments
 Mobile payments, etc.

Packing & Shipping a Commercial Invoice

After downloading the finished commercial invoice, you need to print out three copies:

One for the current country that you’re exporting from

One for the country the package is being imported in

And the last one is for the buyer

Put two of these printed invoices in a packing list envelope, to keep them safe and locked. Then,
put the last one inside the package for the buyer to see.

INSTANCES IN WHICH EXTRINSIC EVIDENCE CAN BE ADDUCED IN COURT, AT

THE EXCLUSION OF THE EXPRESS TERMS CONTAINED IN A COMMERCIAL
INVOICE.

Trade disputes are common in the business world and can arise due to various reasons such as
contract breaches, misunderstandings, or disagreements over terms. In resolving these disputes,
parties may rely on extrinsic evidence to support their claims. Extrinsic evidence refers to any

evidence that comes from outside the written agreement, such as oral testimony, emails, or other
documents.

Extrinsic evidence in trade disputes refers to any evidence that is not contained within the written
agreement. It can include oral testimony, emails, letters, and other documents that are not part of
the original contract. The use of extrinsic evidence is important in trade disputes as it can help to
clarify ambiguous terms, establish the parties' intentions, and provide context to the dispute.
There are three types of extrinsic evidence that are commonly used in trade disputes: parol
evidence, trade usage, and course of dealing. Parol evidence refers to any evidence that is not
contained within the written agreement and can include oral testimony or other documents. Trade
usage refers to the customs and practices of a particular trade or industry, while course of dealing
refers to the parties' previous interactions and conduct.

The parol evidence rule generally bars extrinsic evidence from being used in court if a contract is
unambiguous. However, if there is ambiguity or incompleteness in a commercial invoice,
extrinsic evidence may be permitted to clarify the terms of the contract. For example, if the
commercial invoice does not specify the quantity or quality of goods being sold, extrinsic
evidence such as communications between the parties may be used to clarify the terms of the
contract. In such cases, extrinsic evidence is used to supplement, not contradict, the terms of the
commercial invoice.

Extrinsic evidence may also be admissible in court if there is evidence of fraud or

misrepresentation. If a party can prove that they were induced to enter into a contract based on
fraudulent or misleading information, extrinsic evidence may be used to support their claim. For
example, if a seller misrepresents the quality of goods being sold in a commercial invoice,
extrinsic evidence such as independent inspections or expert testimony may be used to prove the
misrepresentation.
Another circumstance where extrinsic evidence may be used in court is when there is a
contradiction between the commercial invoice and other evidence. If other evidence, such as
emails or text messages, contradicts the terms of the commercial invoice, extrinsic evidence may
be used to reconcile the discrepancy. However, it is important to note that the extrinsic evidence
must be relevant and reliable, and must not contradict the terms of the commercial invoice unless
there is evidence of fraud or misrepresentation. In such cases, extrinsic evidence is used to clarify
the terms of the contract and ensure that the parties' intentions are accurately reflected in the
agreement. Also, in circumstances where there is a mistake or fraud in contract formation,
extrinsic evidence may be used to establish the parties' true intentions. Finally, extrinsic evidence
may be used when

terms are implied by custom or usage in trade. In such cases, trade usage or course of dealing
may be used to establish the parties' intentions.

ADMISSIBILITY OF EXTRINSIC EVIDENCE

Extrinsic evidence may be admitted to show that the parties intended to waive or modify a term
of the contract that was not reflected in the commercial invoice. Several relevant case law
examples that illustrate the admissibility of extrinsic evidence in trade disputes. In the case of
Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., the court allowed the
admission of extrinsic evidence to clarify ambiguous terms in the contract. Similarly, in the case
of Masterson

v. Sine, the court allowed the admission of extrinsic evidence to establish the parties' true
intentions in cases of mistake or fraud. However, there are also cases where extrinsic evidence
has been rejected. In the case of Parolles v. Barnes, the court rejected the admission of extrinsic
evidence as it was not relevant to the dispute at hand. Also, in the Mitsubishi International
Corp. v. Cardinal Textile Sales, Inc., the court held that extrinsic evidence was admissible to
show that the parties intended to modify the terms of the contract after the commercial invoice
was issued. Similarly, in the case of Cargill, Inc. v. Stellar Shipping Co., the court held that
extrinsic evidence was admissible to show that the parties intended to waive or modify a term of
the contract that was not reflected in the commercial invoice.

CONCLUSION

The admissibility of extrinsic evidence in trade disputes is a complex issue that has been the
subject of much debate and litigation. In general, courts are reluctant to admit extrinsic evidence
when interpreting a contract, preferring instead to rely on the plain meaning of the contract’s
terms. However, there are certain circumstances in which extrinsic evidence may be admitted to
aid in the interpretation of a contract.

In conclusion, the admissibility of extrinsic evidence in trade disputes is a complex issue that
depends on the specific facts and circumstances of each case. While courts are generally reluctant
to admit extrinsic evidence, there are certain circumstances in which such evidence may be
admitted to aid in the interpretation of a contract. With respect to commercial invoices, extrinsic
evidence that is not contained in a commercial invoice may be admitted to show that the parties
intended to modify the terms of the contract after the commercial invoice was issued or to show
that the parties intended to waive or modify a term of the contract that was not reflected in the
commercial invoice. However, the admissibility of extrinsic evidence is subject to certain

limitations, and courts will not admit such evidence if it contradicts the express terms of a
contract or varies the terms of a fully integrated contract.
REFERENCES
1. Incoterms® 2020 - ICC - International Chamber of Commerce
2. All about Commercial Invoice (cleartax.in)
3. Guide | Create and Download a Commercial Invoice Template for Global Trade | IncoDocs
4. Trade Data and Analysis
5. What is a Commercial Invoice? Everything You Need to Know (deskera.com)
6. What is a Commercial Invoice - Example | iContainers