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Exports & Imports:: Import Procedure

Finalizing Terms of Import

Once an importer is satisfied with the product sample and creditworthiness of the supplier or exporter, the he can proceed to finalise the terms of the import contract. At this stage importer need to draft the contract terms and conditions very carefully and comprehensively. There should not be any ambiguity regarding the exact specifications of the goods and terms of the purchase including import price, mode of payment, type of packaging, port of shipment, delivery schedule, replacement of defective goods supplied, after sale services/warranty coverage etc.

The different aspect of an import contract is enumerated as under some of which may be relevant and other may not be:

Product Specifications

An importer should clearly mention every minute detail about the product. This factor sometimes became quite important while importing a special order product or item.

Product Standards

Importer should check weather the imported product meets the product standards like ISO certification and Agmark Certifications.

Quantity

Before making an import order, an importer should evaluate the domestic market. This will help the importer to judge the actual quantity of product to be imported.

Inspection

Importer should make clear weather the inspection of imported product will be done by the importer side or exporter side or by a third party agency. In case of inspection done by a third party, importer should also make clear that who will bear the inspection charges.

Terms of Delivery

Delivery terms define the obligations and the responsibilities of the buyer and seller during the delivery of goods. Importer should check all the terms of delivery as mentioned in the Incoterms to avoid any feature doubts.

Terms of Payments

The method of payment is an essential part of an import contract. The credit standing of the importer, previous history of payments, regulations on foreign exchange and licenses in different countries, as well as vested business practices all have an influence on selecting the method of payment.

Import License and Import Permits: Importer should check weather the goods to be imported need any license or not. Importer must also check weather the imported goods are prohibited or restricted.

Duties and Charges

It is better for an importer to have knowledge of all duties and charges imposed on the imported goods.

Periods of Delivery /Shipment

Importer must fix a particular date for the delivery of product, which is also acceptable to the exporter exporting the goods. Importer should also mention the charges that importer will imposed on the exporter in case of late delivery.

Packing, Labeling and Marketing

Proper packaging and labelling not only makes the final product look attractive but also save a huge amount of money by saving the product from wrong handling the export process. So, importer should mention his entire requirement in detail and with preference on labeling of products.

Insurance

Importer can ask the exporter to insure the goods and bear the cost of import insurance. Insurance can also be done from the importer side but it must be made clear on the document.

Methods of Payments in Import

•  Introduction
•  Consignment Purchase
•  Cash-in-Advance (Pre-Payment)
•  Down Payment
•  Open Account
•  Documentary Collections
•  Letter of Credit

Introduction

There is no predefined definition of personal import. In general a personal import is a direct purchase of foreign goods from overseas mail order companies, retailers, manufacturers or by an individual for the purpose of personal use.

The most common terms of purchase are as follows:

•  Consignment Purchase 
•  Cash-in-Advance (Pre-Payment) 
•  Down Payment 
•  Open Account 
•  Documentary Collections 
•  Letters of Credit

Consignment Purchase

Consignment purchase terms can be the most beneficial method of payment for the importer. In this method of purchase, importer makes the payment only once the goods or imported items are sold to the end user. In case of no selling, the same item is returned to the foreign supplier. Consignment purchase is considered the most risky and time taking method of payment for the exporter.

Cash-in-Advance (Pre-Payment)

Cash in Advance is a pre-payment method in which, an importer the payment for the items to be imported in advance prior to the shipment of goods. The importer must trust that the supplier will ship the product on time and that the goods will be as advertised. Cash-in-Advance method of payment creates a lot of risk factors for the importers. However, this method of payment is inexpensive as it involves direct importer-exporter contact without commercial bank involvement.

In international trade, Cash in Advance methods of payment is usually done when-

•  The Importer has not been long established. 
•  The Importer's credit status is doubtful or unsatisfactory.
•  The country or political risks are very high in the importer’s country.
•  The product is in heavy demand and the seller does not have to accommodate an Importer's financing request in order to sell the merchandise.

Down Payment

In the method of down payment, an importer pays a fraction of the total amount of the items to be imported in advance. The down payment methods have both advantages and disadvantages. The advantage is that it induces the exporter or seller to begin performance without the importer or buyer paying the full agreed price in advance and the disadvantage is that there is a possibility the Seller or exporter may never deliver the goods even though it has the Buyer's down payment.

Open Account

In case of an open account, an importer takes the delivery of good and ensures the supplier to make the payment at some specific date in the future. Importer is also not required to issue any negotiable instrument evidencing his legal commitment to pay at the appointed time. This type of payment methods are mostly seen where when the importer/buyer has a strong credit history and is well-known to the seller. Open Account method of payment offers no protection in case of non-payment to the seller.

There are many merits and demerits of open account terms. Under an open account payment method, title to the goods usually passes from the seller to the buyer prior to payment and subjects the seller to risk of default by the Buyer. Furthermore, there may be a time delay in payment, depending on how quickly documents are exchanged between Seller and Buyer. While this payment term involves the fewest restrictions and the lowest cost for the Buyer, it also presents the Seller with the highest degree of payment risk and is employed only between a Buyer and a Seller who have a long-term relationship involving a great level of mutual trust.

Documentary Collections

Documentary Collection is an important bank payment method under, which the sale transaction is settled by the bank through an exchange of documents. In this process the seller's instructs his bank to forwards documents related to the export of goods to the buyer's bank with a request to present these documents to the buyer for payment, indicating when and on what conditions these documents can be released to the buyer. 
The buyer may obtain possession of goods and clear them through customs, if the buyer has the shipping documents such as original bill of lading, certificate of origin, etc. However, the documents are only given to the buyer after payment has been made ("Documents against Payment") or payment undertaking has been given - the buyer has accepted a bill of exchange issued by the seller and payable at a certain date in the future (maturity date) ("Documents against Acceptance").

Documentary Collections make easy import-export operations within low cost. But it does not provide same level of protection as the letter of credit as it does not involve any kind of bank guarantee like letter of credit.

Letter of Credit

A letter of credit is the most well known method of payment in international trade. Under an import letter of credit, importer’s bank guarantees to the supplier that the bank will pay mentioned amount in the agreement, once supplier or exporter meet the terms and conditions of the letter of credit. In this method of payment, plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves. Letters of Credit are issued subject to the Uniforms Customs & Practice for Documentary Credits (UCPDC)(UCP). This set of rules is produced by the International Chamber of Commerce and Industries (CII). 

Documents Against Acceptance

Instructions given by an exporter to a bank that the documents attached to the draft for collection are deliverable to the drawee only against his or her acceptance of the draft.


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