Wednesday 21 September 2011

A Guide to Profitable Importing

To remain competitive and profitable, many companies source raw materials, components and even finished goods from overseas suppliers. There are many reasons why a business may decide to import. Typical examples are:

  • Lower labour costs
  • Relative strength of the home currency against the supplier’s preferred / local currency.
  • Access to skills and materials not available / scarce in the domestic market

Whilst suppliers will be more concerned with securing payment, importing businesses need to ensure that goods will arrive as ordered and in a timely manner. You should consider the following issues:

1. Locating suitable suppliers.  
Whilst lower costs may be a major factor in sourcing from overseas, the appointment of a reputable and experienced supplier will ensure that your reputation with your own customers will not be at risk. Factors to consider are:

  • Where is the supplier located?
  • Do they have a strong track record regarding quality (eg: meeting British / European standards)?
  • Do they deliver on time every time?
  • Do you need to appoint a local agent (eg: for regular quality inspection of goods)?
  • Are goods presold or held in stock?
2. Transportation and logistics.
  • How will the goods be transported - sea, air or road?
  • How long will it take for goods to arrive?
  • Who bears responsibility for transit risk, cost and other obligations as defined in Incoterms® 2010 (eg: FCA, FOB, CPT, CIP, CFR, CIF, DAP)?
  • Have you researched Customs duties / licenses etc? Don’t be caught out with an unexpected bill once the goods arrive in the UK. Research the tariff code applicable to your product. Information can be obtained from HM Revenue & Customs.
3. What payment terms will the supplier offer?
  • Payment in advance or on very short credit terms will have a negative impact on your cash flow.
  • Consider the transit time of the goods and subsequent stocking times and credit terms given to your own customers.
4. Methods of Payment
  • By offering secure / guaranteed payment to your suppliers can you secure longer credit terms?
  • Do you need to issue Documentary Letters of Credit to suppliers?
  • What will the impact be on your banking facilities?
  • Are Letter of Credit terms and conditions favourable to you as well as your supplier?
  • What additional costs will you incur?
  • What administrative impact will additional banking paperwork create?
  • How much is your bank charging you to remit international payments? Are you using the most cost effective payment channels?
  • Should you consider an alternative Foreign Exchange / Payment provider who may be able to offer an online more cost effective solution than your bank?
5. Financing Imports.
  • What support does your bank provide?
  • Are you provided finance that meets your needs / matches your trade cycle?
6. Supply Chain Management.
  • How do you manage your physical and financial 'supply chains'?
  • Do you work closely with freight forwarders and your bank to optimise delivery of stock and shipping documents / effect timely and cost effective payments?
Import Letters of Credit & Risk Management Training

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