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Invoice: Importance of Invoice and Types of Invoice in Foreign Trade

Arjun EP

Published on: October 22, 2020

What is an invoice?

Invoice is a list of sold goods in detail like types, size, quantity, rate, trade discount, VAT or tax, mode of payment etc.

Invoice is an important business document.

It is prepared by Organization to organization, Seller to buyer, Consignor to consignee, Exporter to importer

According to goods and organization, its format may be different.

But it contains serial number, particulars, quantity, rate, amount, discount, tax etc in all.

Importance of Invoice

Invoice is very important business document for home trade, consignment and foreign trade.

The major importance are as follows:

Invoice is the formal evidence of sales of goods.

Invoice gives information to buyer, importer and consignee that amounts are to be paid.

It gives full details of goods like types, size, quantity, rate, trade discount, VAT or tax, mode of payment etc.

It helps seller to fix selling price.

It helps to consignee to fix selling price and commission.

It helps to tally between order and received goods.

It helps to importer and exporter about due and receivable amount etc.

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Types of Invoice in Foreign Trade

In home trade, there is only one type of invoice.

But in foreign trade, there are five types of invoices.

They are different due to expenses incurred by exporter; they are as follows:

Loco invoice

Loco invoice means local or godown invoice.

It is related to only cost of goods.

It does not include any carriage expenses.

All the expenses are borne by importer under loco invoice.

Loco price = Cost of goods

FOB invoice

FOB invoice means free on board invoice.

Under this invoice, exporter pays carriage expenses from his godown to board of ship.

It includes packing charge, carriage upto ship and loading expenses.

FOB invoice = Cost of goods + All expenses upto board of ship

C&F invoice

C&F invoice means cost and freight invoice.

Under this invoice, exporter pays carriage expenses from his godown to freight of ship.

It includes packing charge, carriage, loading expenses and carriage of ship.

C&F invoice = Cost of goods + All expenses upto board of ship + Freight of ship

CIF invoice

CIF invoice means cost, freight and insurance invoice.

Under this invoice, exporter pays carriage expenses from his godown to freight of ship and insurance.

It includes packing charge, carriage, loading expenses, carriage of ship and insurance charge.

CIF invoice = Cost of goods + All expenses upto board of ship + Freight of ship + Insurance

Franco invoice

Franco invoice means all expenses incurred invoice.

Under this invoice, exporter pays all expenses from his godown to godown of importer.

It includes packing charge, carriage, loading expenses, carriage of ship, insurance charge and expenses upto godown of importer.

Franco invoice = Cost of goods + All expenses upto board of ship + Freight of ship + Insurance + Expenses upto godown of importer

Keep in Mind (KIM)

Loco = local expenses of exporter

FOB = free on board

C&F = cost and freight

CIF = cost, insurance and freight

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country

PROBLEM: 1

Kedar Oil (P) Ltd, Rupandehi has following information (PAN No. 567891234):

Sold to DK Traders, Jamal, Kathmandu (Order No. 567/19, PAN No. 023456789):

30 cartoons soya bean oil, each cartoon contains 10 liters @ Rs 125 per liter.

10 tins mustard oil, each tin contains 15 liters @ Rs 130 per liter.

Business terms:

Trade discount @ 10%.

Value added tax (VAT) applicable @ 13%.

Condition of sales: 2/30, net 60

Required: (a) Invoice; (b) Advice notes; (c) Delivery note

[Answer: Total amount = 57,969]

SOLUTION:

The general format of an Invoice is as follows:

Invoice No: 4321
PAN No.		Kedar Oils (P) Ltd
567891234		Galla Mandi, Bhairahawa, Rupandehi
		Phone No: 071-567899 Fax: + 977-071-567900
To,				Dated: 10 September 2019
DK Traders, Jamal, Kathmandu.				Your Order No: 567/19
Phone: 01 ̶ 456789				Despatch Details: 30 cartoons and 5 tins
PAN No. 023456789

SN	Description		Quantity			Rate	Amount
1	30 cartoons soya bean oil		300 liters			125 per liter	37,500 19,500
2	10 tins mustard oil		150 liters			130 per liter
							57,000 − 5,700
10 % Discount
Net amount for tax							51,300 + 6,669
VAT 13%
Total amount							57,969
Amount in words:
Fifty seven thousand nine hindered sixty nine.					Jay Gupta
Condition of sales: 2/30, net 60					Authorized Signature
Errors and Omissions Expected (E&OE)

Keep in Mind (KIM)

Practically, sales invoice are prepared in many copies; it may be in three to six copies.

The number depends on the policy of organization.

If a business uses the invoice as the advice note and the delivery note, there may be six copies.

Three to four copies are normal.

The first copy is sent to the customer.

The second copy is sent to the accounts department, the third to the sales department and the fourth one is filed separately when required by the concerned government office.

DOCUMENTS REQUIRED FOR CREDIT SALE

Apart from the sales invoice, there are other documents prepared by the seller at the time of sale.

These documents are (a) Advice notes (b) Delivery note

Advice note

It is a note, sent to the customer before the goods are dispatched.

This note is especially sent to the customer to inform that goods are on-the-way.

If goods do not reach within normal delivery time, then the customer can notify to the seller. In this condition, enquiries may be made with the transporter about what happened to the goods.

The general format of an Advice Note is as follows:

Advice Note No: 1234
Kedar Oils (P) Ltd
Galla Mandi, Bhairahawa, Rupandehi
Phone No: 071-567XXX Fax: + 977-071-567XX0
To,			Dated: 10 September 2019
DK Traders,			Your Order No: 567/19
Jamal, Kathmandu.			Despatch Details: 30 cartoons and 5 tins
Phone: 01 ̶ 456XXX

SN	Description		Quantity	Rate	Amount
1	30 cartoons soya bean oil		300 liters	125 per liter	37,500 19,500
2	10 tin mustard oil		150 liters	130 per liter
					57,000 − 5,700
10 % Discount
Net amount for tax					51,300 + 6,669
VAT 13%
Total amount					57,969
Delivery to:
DK Traders		Jay Gupta
Jamal, Kathmandu		Authorized Signature

Delivery note

This is an additional note of the goods.

This is sent to the customer with transport so that the goods can be checked immediately and verified.

In normal practice, transporter retains a copy of the delivery note after getting it signed by the customer or his authorized person.

It shows that goods have been received by customer.

The general format of Delivery Note is as follows:

Kedar Oils (P) Ltd
Galla Mandi, Bhairahawa, Rupandehi
Phone No: 071-567XXX Fax: + 977-071-567XXX
To,		Dated: 11 September 2019
MK Traders,		Your Order No: 567/19
Jamal, Kathmandu.		Despatch Details: 30 cartoons and 5 tins
Phone: 01 ̶ 456XXX		Delivered by: Shiv Transport

SN	Description			Quantity
1	30 cartoons soya bean oil			300 liters
2	10 tin mustard oil			150 liters

Delivery to:
DK Traders			Jay Gupta
Jamal, Kathmandu			Authorized Signatory
Received: 30 cartoons and 10 tins
Dated: 15 September 2019

Dinesh Sharma
(on behalf of DK Traders)