One of the goals for many businesses is international expansion, which opens up new markets but can also bring new challenges. Some of the issues that a business must deal with when it expands overseas involve currencies and exchange rates, since typically the buyer and seller will not use a common currency.
An invoice currency is the currency that a business uses to charge its customers. A buyer agrees to an invoice currency when he signs a purchase agreement or places an order. In either case, the invoice currency represents the way of measuring the price for an order. The invoice currency and amount are fixed at the time a business issues the invoice, whether it's before, during or after shipping goods or providing services. Domestic transactions also have invoice currencies, but since the seller and buyer use a common currency the invoice currency is sometimes assumed.
International invoices include a line item called currency code, which refers to the invoice currency used throughout the rest of the document. For example, an invoice using Canadian dollars as the invoicing currency would include the currency code CAD. The rest of the invoice would use simple numbers or the dollar symbol, all of which would refer to Canadian dollars. This includes every amount listed on the invoice, including the unit price, the total price, the amount due and the shipping and insurance charges.
Invoice currencies are important for a number of reasons. A business or individual making purchases from various international suppliers will need to use exchange rates to convert and compare previous invoices for record keeping and tax reporting. In addition, currency values change over time relative to one another. This means that the invoice currency for a product can affect its price for the buyer if the exchange rate between the buyer's currency and the invoice currency change during the sales process.
Common Invoice Currencies
The most common invoice currency for international transactions is the U.S. dollar, or USD. This reflects the position of the United States as a major exporter as welll as the dollar's relatively stability. Since its introduction in the early 2000s, the euro has become a common invoice currency in certain parts of the world. Any currency can be an invoice currency as long as the buyer and seller agree to its use.