Importing supplies successfully

A strong pound and competitive prices abroad are sound reasons to consider importing goods for your business. Importing successfully is not difficult if you follow through a carefully thought-out plan of development and action.

This guide looks at the benefits of importing, then takes you through the various requirements, processes and customs practices you need to consider. A list of organisations that can provide further assistance is given at the end, along with a checklist of pitfalls to avoid.

Why import?

You’re already running a successful business, so why import?

There are a number of benefits to be gained by opting for an overseas supplier:

Lower priced goods

Lower labour costs or simply a different tax regime may mean one country’s prices for a particular product are significantly lower than those in the UK. Importing fresh cut flowers from Israel is cheaper than growing them here, for example, because labour costs are lower and the climate is better.

Higher-quality finished products

Every country has its specialities and strengths. If you want the very best, it could be to your advantage to import from a particular country.

Traditional skills and raw materials

It makes sense to take advantage of the traditional crafts and skills that have been carried on for generations in particular cultures. Silk flowers are made in China for good reason – they have both the raw material and the traditional skills to make them.

Original products

Originality and authenticity is everything in certain markets if you want to keep ahead of your competitors. The trend for Far Eastern interiors may mean importing rush place mats from China or finding original basketware in Vietnam.

How to source suppliers

The key to successful importing lies in choosing the right supplier. In the initial research stages, it is perfectly possible to access a great deal of information from the following sources:

• Trade representation in the UK – many overseas countries with an interest in exporting to the UK have some sort of representation in the UK, whether a Chamber of Commerce or a commercial department within an embassy or consulate.
• International trade exhibitions and fairs are another good source of suppliers willing to do business with UK companies.
• Trade associations, with their links to members and companies in the same business as you, can be a rich source of contacts and advice. They may also be able to forewarn you about specific companies abroad that have proved to be unreliable in the past. 
• Trade journals may also carry details of exporters wishing to trade with the UK.
• The Internet is another important source of suppliers of various goods.
• Overseas agents or exporters – imports from some countries may make it necessary for you to use an agent in that country to guide you through the required procedures. This might be appropriate in the Far East, for example. 
• Via the merchandise – if the product you wish to import is already in the shops here, there’s nothing to stop you checking the country of origin markings. Then get in touch with that country’s consulate or chamber of commerce for information on agents and factories to contact.

Avoiding the pitfalls

International trade, inevitably, carries more risk than a joint enterprise with a UK-based company, where creditworthiness and quality of produce or materials can be looked into in considerable depth.

Language

Effective communication is an essential part of any business transaction. If you have plans to import from countries where English is a foreign language, learning the language will afford you greater advantages over competitors. You can also benefit from understanding the cultural differences between the two countries. It’s worth noting that 70 per cent of British companies do business with overseas clients – yet only 10 per cent of managers use anything but English with their foreign partners. So it shouldn’t be too difficult to impress!

Suppliers

The reliability of your supplier is of paramount importance. Find out as much as you can via business contacts and consider asking for references from their bank or an international credit reference agency. While the Internet, faxes and phone make for easier communication with foreign companies, there is no substitute for visiting the company in person to judge for yourself whether or not you should be doing business there.

Product liability

You also need to find out whether you will be held liable, under the principles of product liability, for any harm caused by imported goods.

Agreeing the total cost

Consider carefully the terms and conditions of the contract. It is essential to check that the price includes everything you agreed, from particular packaging requirements to payment terms and delivery costs.

Exchange rates

Fluctuating exchange rates can affect both the price of the product you are buying and your profitability. A ‘forward exchange contract’ is one way to protect yourself. This is a binding obligation to buy or sell a certain amount of foreign currency at a pre-agreed rate of exchange, on or before a certain date. This enables you to budget at a guaranteed rate of exchange.

Going ahead with an order

Making an order

The details of the order are likely to be lengthy as they will need to include such things as price, quantity, quality, delivery, packaging, payment terms and insurance. A trade association or your legal adviser should be able to advise on typical terms and conditions for your particular industry.

Payment options

How you choose to pay your supplier depends on a number of factors, not least the level of trust between you.

Open Account

The large majority of orders placed with members of the EU are done on an open account basis. In other words, the supplier trusts your ability to pay them against their invoice within, say, 30 days. Clearing banks offer fast money electronic transfer systems for such transactions. Alternatively, you could speak to your bank manager about opening a euro currency account which would allow you to trade with countries in the Eurozone using just one account.

Letters of credit

These are popular for settling international trade transactions because they offer both buyer and seller security and are honoured through the banking system. They work like this: the conditions of the sale are stated on the letter of credit, including the amount to be paid, a description of the goods and what documents the exporter must present to receive payment. The importer’s bank guarantees the exporter that payment will be made if those conditions are met.

Documentary collections

This is where the documents relating to the goods imported are sent by the supplier via their own bank to your bank. Your bank receives all the shipping documents and the invoices, which state the methods of payment. The bank will then notify you when it has all the documents. The advantage of this system is that you, as the importer, don’t have to make payment for your goods until you have accepted the documents relating to them from your bank.

Paperwork and legal considerations

Import licenses and quotas

Many countries aim to limit the quantity of certain goods being exported from their country. If the quota is exhausted, you won’t be able to import that product. This process is normally regulated by the issue of import and export licences. The DTI (Department of Trade and Industry) import licensing branch can give you further details.

Duty

Member countries of the EU have formed one customs area allowing unrestricted movement of the majority of goods between them, although you may still require an import licence. For goods imported from outside the EU, the rate of duty to be paid is decided by how the goods are classified. For assistance with Tariff Classification, call the Tariff Classification helpline (see Useful contacts, below).

Import VAT

Import VAT is levied at 17.5 per cent on the value of the goods plus related costs including duty, freight and insurance. Companies importing on a regular basis may be advised to obtain a deferment account. Local HM Revenue & Customs advice centres can offer further assistance.

Product safety and marking 

Under UK law, you are obliged to ensure any products you import are safe and comply with the relevant product standards. This may involve them being tested in an accredited laboratory. Your local trading standards officers are the relevant people to speak to with regard to marking and standards of safety for particular products.

Transporting the products

The terminology

Various terms are likely to be used on documents and in discussion with suppliers, shippers, insurance brokers and agents. These are referred to as INCOTERMS (international commercial terms) and tend to relate to the point at which responsibility for the goods hands over from the seller to the buyer. SITPRO (The Simpler Trade Procedures Board) has a leaflet explaining the various terms in detail. The main ones are listed below:

EXW – Ex-works

The seller must place the goods at the disposal of the buyer at the seller’s premises or another named place.

FCA – Free carrier

The seller must deliver the goods, cleared for export, to the carrier nominated by the buyer at the named place.

FOB – Free on board

The seller delivers the goods, cleared for export, when they pass the ship’s rail at the named port of shipment.

CFR – Cost and freight

The seller delivers the goods when they pass the ship’s rail in the port of shipment and must pay the costs and freight necessary to bring the goods to the named port of destination.

CIF – Cost insurance and freight

The same as above except the seller must also procure insurance against the buyer’s risk of loss or damage during carriage.

CPT – Carriage paid to

The seller delivers the goods to the nominated carrier and must also pay the cost of carriage necessary to bring the goods to the named destination.

CIP – Carriage and insurance paid to

The obligations are the same as under CPT with the addition that the seller must procure insurance.

DAF – Delivered at frontier

The seller must place the goods at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import.

DES – Delivered ex-ship

The seller delivers when the goods are placed at the disposal of the buyer on board the ship, not cleared for import, at the named port of destination.

DEQ – Delivered ex-quay

The seller delivers when the goods are placed at the disposal of the buyer, not cleared for import, on the quay at the named port of destination.

DDU – Delivered duty unpaid

The seller must deliver the goods to the buyer, not cleared for import, and not unloaded at the named place of destination.

DDP – Delivered duty paid

The seller must deliver the goods to the buyer, cleared for import, and not unloaded at the named place of destination.

Terms of delivery and means of transport

Although some suppliers may wish to quote for their goods including the transport or freight charges, it’s generally preferable to take responsibility for your goods early in the supply chain, as it allows you to choose the carrier, routing and point of entry into the UK.

Cargo insurance

Arranging this cover yourself allows you to choose the level and extent of insurance. The exporter, for example, might only cover the goods until they reach a UK port. You might prefer the goods to be covered as far as the warehouse gates. In the event of a problem, it also means you are dealing with a UK-based company that speaks your language! Further information can be obtained from a specialist cargo insurance broker.

Tips

• Clear communication is key to successful importing and ensuring it is your firm the supplier continues to do business with.
• Choose the right payment options. Talk to your bank or financial adviser about the best way to manage the financial side and exchange rate risks.
• Get to grips with the paperwork. Find out in advance about import licenses, quotas, duty and VAT and any product marking necessary.
• Agree delivery and transport terms.

Useful contacts

SITPRO (The Simpler Trade Procedures Board) is a valuable point of contact for companies planning to import goods. Its mission is to minimise red tape and make international trade easier and more cost-effective for the UK business community.

T: 020 7467 7280
W: www.sitpro.org.uk

HM Revenue & Customs provides technical advice and information on all import procedures, tariff classification for duties and VAT matters. Customs, Excise and VAT helpline: 0845 010 9000

Tariff Classification helpline: 01702 366077
W: www.hmrc.gov.uk

British International Freight Association (BIFA) can help businesses make contact with a customs agent and provide advice on transporting of goods.

T: 020 8844 2266 
W: www.bifa.org