Importing supplies from overseas can help you lower your production costs and increase your profit margins.
Before you start though, you’ll need a carefully thought-out plan of action. This guide looks at the steps you’ll need to take to help ensure success.
There may be a number of benefits attached to choosing a supplier from overseas. These include:
- Lower-priced goods – lower labour costs or a different tax set-up may mean the price you’ll pay in one country for a particular product, even with transport costs, is much lower than you’d pay in the UK.
- Higher-quality finished products – every country has its specialist skills and strengths. If you want to sell the best, it could make sense to import it.
- Traditional skills – in some cultures, there are traditional crafts and skills that have been carried on for generations, and which would be hard to replicate elsewhere.
- Original products and raw materials – originality and authenticity are important in some markets if you want to keep ahead of your competitors. Some raw materials may also not be available locally.
Choosing where you want to import from is influenced by a variety of factors including distance, as this may affect the cost of shipping, the length of your trading cycle and the ease of visiting your chosen supplier.
Make sure you understand whether they are a wholesaler, trading company or manufacturer. Using an intermediary like a wholesaler or trading company can potentially make things easier if they are used to exporting, but they will charge a mark-up so it can be more expensive. It’s also important to fully understand any intermediary’s role and who they work for. If there is a problem who do they represent, you or the exporter? Dealing with the manufacturer direct could be cheaper, but they may not be as familiar with what is required in terms of paperwork. But obviously this varies company to company.
The key to making a success of importing often lies in choosing the right supplier to begin with. This means you’ll first need to do some research, but there are a number of sources that can help:
- The International Trade Portal – a valuable online resource available to all UK businesses, free and unlimited, to support your international trade ambitions. The portal gives you access to detailed databases of buyers and suppliers for your business, including contact details to help you build new relationships. It also includes over 190 country profiles with an overview of the business environment, foreign trade indicators, customs information and more to help give you an overview of the destinations you could explore for new business opportunities, as well as giving you insights on how to conduct business in each area. For the top trading countries these profiles also include a COVID-19 section to keep you up to date on how each country is recovering from the pandemic, and any restrictions in place which may need to be taken into account when choosing your next market.
- Trade representation in the UK – many organisations with an interest in exporting to the UK have some sort of representation here. You may able to get details from the relevant foreign Chamber of Commerce, or the commercial department within a foreign embassy or consulate.
- Your own industry's trade associations – they will have links to companies in your market, so they can be a good place to get contacts and guidance. They may also be able to warn you about specific market issues.
- Trade journals – these may carry details of exporters wanting to trade with the UK.
- The internet – you can search for suppliers, although you should take care to establish the authenticity of any overseas businesses you locate online.
- Overseas agents or exporters – an agent based in the country you want to import from can help speed up the process. They’ll also be able to guide you through the necessary procedures.
- Check the merchandise – if the product you want to import is already available in the UK, there's nothing to stop you checking the country of origin markings. You can then get in touch with that country's consulate or Chamber of Commerce for information on agents and suppliers to contact.
Trading internationally may carry more risk than dealing with UK-based companies, where it’s not so easy to check creditworthiness and quality of goods. Where a country has high volumes of trade with the UK you can take this as a good indication that other businesses have been able to set up and establish relationships with other traders in that country.
If you want to import successfully however, there are a number of issues you’ll need to take into account:
At the moment when importing goods from EU countries you need to pay VAT but not import duty. This will continue during the transition period but from 1 January 2021 you’ll need to follow the rules as if you were importing from the rest of the world. So you may need to factor in the uncertainty about any agreements the government may make and whether there are any changes to import duty to see if your imports are cost effective long term once the transition rules no longer apply.
Finding the right supplier
The reliability of your supplier is crucial if you’re to make importing a success. Find out as much as you can about them through your business contacts and consider asking for references from their bank or an international credit reference agency. There is also no substitute for visiting the company in person.
You may be held liable for any harm caused to individuals by goods you have imported. As a result, you may want to look into insurance to cover this. It’s also important to ensure that any goods you are importing comply with UK safety standards I.E. Kitemarks and CE marks.
Agree the total cost
With imports, it is essential to check that the price you’ve agreed includes everything from packaging and insurance, to delivery costs and import duties. Go over the terms and conditions of your contract extremely carefully, to make sure that all costs are included.
Any contract should include Incoterms – a set of 11 internationally recognised rules which define the responsibilities of sellers and buyers and clearly set out who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance etc.
Fluctuating exchange rates can reduce your profitability, since they can affect the price of both imports and exports. So you should always make sure you know the impact that changing exchange rates could have on your profit margins and cash flow. One way to protect yourself is with a forward exchange contract. 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. It lets you budget at a guaranteed rate of exchange.
CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT. All enquiries for foreign currency accounts will be referred to a specialist manager who will provide more information about charges for these services upon request.
What a purchase order should contain
Typically, your order should include:
- the name of the vendor
- a description of the goods
- the agreed price of the goods requested
- the quantity ordered
- the quality required
- the delivery schedule, terms and costs
- how the goods will be packaged for shipping
- payment terms
Your legal adviser, or trade association, should be able to give you advice on typical terms and conditions for your specific industry.
A signed PO is a binding legal agreement to buy goods or services so you should make sure you are happy with what you are ordering and have clearly set out the level of quality you expect from your supplier.
Test the water
It may be worth ordering only a small quantity from a new supplier to begin with. That way you can find out more about your supplier's efficiency and reliability, how easy they are to deal with, and the quality of their product.
Overcoming language barriers
When ordering from abroad, double check that your supplier has understood exactly what your requirements are. If your first languages are not the same, there could be room for misunderstanding. Think about whether a translator might help ensure that what's been agreed is clearly understood by all parties.
Allow plenty of time
Take into account the extra time it could take for an order to reach you from overseas. You’ll need to factor that into the delivery times you give to your customers. The shipping time could be longer and there could be delays with goods being cleared through customs. Make sure you understand both times in transit (days on the water for goods being shipped) and how long it will take door to door.
How you choose to pay your suppliers depends on a number of factors, not least the level of trust between you.
Open account – The supplier trusts your ability to pay them against their invoice within a given time period, such as 30 days. Clearing banks offer fast money electronic transfer systems for these kinds of transactions. Or you could open a foreign currency account allowing you to trade internationally and reducing exposure to exchange rate fluctuations.
Letters of credit – These offer both buyer and seller extra security and they are honoured through the banking system. The conditions of 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 then ensures payment is made if those conditions are met.
Documentary collections – Documents relating to the goods to be imported are sent by the supplier through their bank, to your bank. Your bank takes receipt of all the shipping documents and invoices, which will state the method of payment. Your bank then notifies you when it has all the documents. The advantage of this option is that you, as the importer, don't have to make payment for the goods until you have accepted the documents relating to them from your bank.
Import licences and quotas
Many countries will try to limit the quantity of certain goods being exported from their country. If the government’s quota has already been reached, you won't be able to import that particular product. This process is normally regulated by the issue of import and export licences. Find out the quotas that apply to your goods or services when you register on our International Trade Portal.
How much duty you will need to pay on your goods will depend on what you are importing and where from. Although the UK has now left the European Union the transition period still allows unrestricted movement of the majority of goods with the UK, although you may still need an import licence.
For goods imported from outside the EU, the rate of duty is decided by how the goods are classified. For help with Tariff Classification, visit HM Revenue and Customs’ Trade Tariff Tool and Tariff Classification Service or register on our International Trade Portal.
Import VAT is levied on the value of the goods at the standard rate, plus any related costs including duty, freight and insurance. You would usually have to pay at the time goods enter the UK. But companies importing regularly are sometimes advised to obtain a deferment account. This can have additional advantages that your goods can be cleared more quickly by customs too.
Your local HM Revenue & Customs guidance centre can also offer further help on this.
Product safety and marking
UK law states that you must make sure any products you import are safe and comply with the relevant product standards. They may need to be tested in an accredited laboratory. For more information about marking and standards of safety for particular products, speak to your local authority's trading standards officers.
Terms of delivery and transport method
Some suppliers will quote for their goods including the transport or freight charges, but you may want to take responsibility for your goods earlier in the process. This allows you to choose the carrier, the delivery route and the point of entry into the UK. It’s always advisable to inspect your goods as soon as you receive them.
Arranging cargo insurance yourself allows you to determine the level and extent of cover. For example, the goods might only be covered by the exporter until they reach a UK port, whereas you might want them to be covered all the way to the warehouse gates. It also means that, if there's a problem, you are dealing with a UK-based company that speaks your language.
There is a set of common terms that are used by most international suppliers, shippers, insurance brokers and agents in their documentation. These are referred to as international commercial terms (INCOTERMS).
International Trade Portal
Visit our International Trade Portal for the background knowledge to plan with confidence and practical resources for every step of your international trade journey, from targeting the right market to making your first shipment. Check out our import and export factsheets and use our tool to calculate the cost of importing.
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While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by Bank of Scotland for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. Specific advice should always be sought in each instance.