Taming the bureaucracy

Taming the bureaucracy

Stack of export documents ready to goWe’ve got a quote on our front page:

“Documentation is a vital part of sales, and especially export sales; the documents are not only the instrument for getting paid, but the instrument by which the buyer is able to access their goods. All countries have import regulations, and the incoming consignments must pass through the local customs authorities as well as any governing industry bodies. To get through this process, importing countries rely on the documents provided by the exporting country to verify compliance with local regulations.

It all sounds very formal, but it says in a nutshell exactly why getting the documentation straight for your export shipments is so very important: good export documentation gets your goods cleared, and makes sure you get paid.

 

Getting paid

There might be an importer-exporter pair somewhere on the globe who can send and receive between themselves on a handshake, with the seller never having to chase payment, and the buyer always receiving perfect shipments, and Customs waving the shipments through without scrutiny. It’s really a fable – we normal beings have to do it the careful way.

There are four legs on which your getting paid balances:

  • Your goods are of the right quality and properly certified as required by the customer;
  • You have obtained all the correct certifications and permits to export and for your customer to import;
  • Your properly-prepared export document set is complete and contains all the required information; and
  • Your shipping method is suitable to deliver the goods on time and in good condition.

Here we’re most interested in the documentary leg – what you need to cover to make sure all your documents will be complete and properly prepared.

Incoterms

Agreeing with your customer on the terms of trade is crucial to the success of the whole transaction. International Commercial Terms of trade are the means of doing just that; you need to know which ones you will accept, and discuss this with your customer before you issue any documents at all, including the Proforma.

What are they? A series of three-letter trade terms related to common contractual sales practices, Incoterms are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

What do they do?  Incoterms add certainty to your sales contract or Proforma, by defining for both Seller and Buyer the obligations, costs and risks  involved in the delivery of goods from the Seller to the Buyer.

Incoterms do not constitute a contract of any kind, or supersede the law governing the contract; they do not define where title transfers, nor do they address the price payable, currency or credit terms. These things have to be agreed and included in your contract separately.

The basic information about Incoterms in Wikipedia is quite good; the full information about Incoterms can be purchased from the International Chamber of Commerce. If you are in any doubt, talk to your forwarder and to Customs. And make sure you and your customer are agreed!

Are the Incoterm Terms of Trade the same as Payment Terms?

In a word: no.  It’s important to remember that Incoterms define where the risk changes, not the title to the goods. The change of title will depend in part on the payment terms agreed in the contract of sale, and in part on the laws governing the contract of sale.  So you need to make sure you have agreed on payment terms as part of the contract of sale.

Lead times and delivery

Lead times include both the time it will take you to get the goods to the terminal, and the shipment or transit time. You might also need to include land transport transit times for the destination, to get goods from the port to the final delivery place. You need to ensure that you have agreement from your customer, and to discuss contingency plans to cover any delays; you need also to be sure you know who will be covering the costs at all stages. Once you have agreement, make sure that the details are included in your contract of sale or Proforma.

Insurance

Your Incoterm covers the matter of insurance during transit, and who is responsible for arranging and paying for it. Make sure you understand the requirements covered by the Incoterm, and that you have covered the costs in your Proforma.

 Are we there yet?

Ticking things off on our fingers, we can start a list:

  • Type and quantity of goods required: check.
  • Lead time to terminal: check.
  • Harmonised code and all the information for customs clearance both inbound and outbound: check.
  • Incoterm and payment terms: check.
  • Insurance needs: check.

We now know what information we still need:

  • Where and exactly how the goods are to be shipped and where delivered;
  • Which extra documentation we need – such as Certificate of Origin, Import Permit, Export Permit, Dangerous Goods declaration, Phytosanitary Certificate, to name just a few.

In the next article in this series, we’ll finish checking all the boxes, and then we’ll be ready to get things moving!

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