6 Check-Points To Ensure Before Export Import Business

To avoid many risks and problems involved in export import business, it is better to know them upfront. Here are 6 check-points which will help you to avoid the challenges in cross border deals:

(1)   Trade Finance Tie-Up: It is important for importers and exporters to have trade finance tie-up with bank to ease out cash constraints or liquidity gaps before finally entering into any trade. Trade finance facilitates the growth of a business by securing funds required to purchase goods and stock. Managing cash and working capital is critical to the success of any business. A trade finance facility will allow company to offer more competitive terms by reducing the payment gaps of trade cycle.

 (2)   Payment Methods: Payments in trade finance carries various types of risk for importer and exporter. There are 4 types of payment methods, namely: (i) Cash Advances (ii) Letters of Credit (iii) Documentary Collections and (iv) Open Account sales. Risk involved is in ascending order for exporters and in descending order for importers respectively in above methods. As a business owner, it is important to understand the different risk associated with each type of payment method, to see which one is most favourable and suitable for your business requirement.

 (3)   Domestic Import Duty: It is advisable to go through existing and relevant Domestic Import Duty Tax Structure / Circulars before placing an order with the overseas supplier. It will help the importer to know the rate of import duty, need for an import license or restriction on the import goods quantity, if any, etc.

 (4)   Use of Incoterm 2020: Without a good working knowledge of Incoterms 2020 rules, it will be highly risky to close any sales deal. A sale is not a sale until the goods move from seller to buyer and are paid for. Use the most suitable Incoterm for each transaction. Being a buyer, if you want to manage the major cost like sea / air freight, then buy under EXW, FCA, FOB, FAS but if you want supplier to control these cost then buy under CFR, CIF, CPT, CIP, DAP, DPU and DDP.

 (5)   Terms and Conditions: As an importer, ensure to read and understand the supplier’s terms and conditions meticulously as it would save you from any future dispute. As an exporter, protect yourselves by establishing your terms and conditions before entering into any trade transaction.

 (6)   Cost: Find out the actual cost. Do not estimate any cost. Estimated cost may be fatal to the profit margin.  Clear understanding should be there about all the costs from collection point to delivery points. Inaccurate costing will hamper the profit margin. All the charge mentioned in the invoice needs to be thoroughly understood.

Ensuring the above check-points would certainly help the customer to avoid many issues related to export import business.