Export import tutorial

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Export import tutorial

Step One: THE PLAN

The first step when importing is to determine why you are importing.  Ask yourself the following three questions:

Is the product(s) you need to conduct your business available domestically?
Have you discovered a lucrative and untapped domestic market for an imported product?
Does importing a product increase your competitiveness as a business?

Once you have determined that importing certain goods can benefit your business, the next process in Step One is to develop a thorough business plan.

When building your business plan determine the domestic target market, evaluate government regulations and pay attention to the nature of the product to determine the proper Harmonized Tariff Schedule (HTS) product classification.

The HTS compiled by the US Government will better enable you to understand applied tariffs assessed to your merchandise.  Most tariffs applied to merchandise are ad valoreom, which equates to a certain percentage of duty on the invoiced cost of your imported product.

For comprehensive HTT tariff access FedEx.com, and sign up for the Global Trade Manager. In the business plan process you need to determine if the government of the imported product has any imposed quota restrictions to protect various domestic industries, or there might be restrictions because the product may be harmful to human, animal or plant health.  Without properly researching this information you may be stuck with boxes of un-sellable merchandise at Customs.

To further your research, the US Census Bureau of Foreign Trade Statistics at www.census.gov , The US Chamber of Commerce at www.uschamber.org and the Library of congress (www.loc.gov) offer in depth business and demographic research and business reference links for your country of interest.

The following list of websites will be helpful in the business planning process.

Market Research Reference Tools : Foreign Trade Online and World Trade Magazine Online are informational resources for conducting market research on specific industry related, trade leads and topics.  It can act as a helpful tool for identifying competitors both national and international.  You can access this information through www.foreign-trade.com

World Trade Magazine Online is an good resource for current global trade information www.worldtrademag.com For specific written materials on importing and exporting, the Department of Commerce Business and International Trade Bookstore can be a great resource and can be accessed at  http://trade.gov/publications

The Electronic Embassy website, www.embassy.org   is helpful is routing you to international embassies,  detailed information on Washington D.C. logistics and other useful information.


Once you have developed a business plan for imported products the next step is devising a logistic plan for physically importing your merchandise.  This is where logistics management on your part becomes a major decision.  Will you be in charge of arranging for importation of your goods and be physically present with necessary documentation when your merchandise arrives?  Or, will you make these arrangements via a third party logistics manager such as a customs broker or freight forwarder?

The documentation process for imports

When importing, ‘standard terms and conditions’ should be established which outline the pricing and quantity arrangements for importing your merchandise. Once both parties agree upon the terms and conditions the seller will draft a sales confirmation that once signed by the importer becomes a legally binding contract.  The length of these written arrangements can vary depending upon size of order and stipulations between buyers and sellers.

A Sales Confirmation or agreed upon proforma invoice must outline:

The port of destination

Who is the seller and buyer

Mode of delivery

Shipment preferences

Date of order and invoice

Country of shipment origin

Quantity either in number, weight or volume and a description of imports including country of origin and quality of product

Purchase price of the goods, these figures may vary depending upon type of Currency used during exchange

All of the following document types may also accompany the shipment into the US:

Customs entries

Invoice from exporter

Consular invoice

Certificate of Origin

Inspection certificates

Certificate of manufacture

Insurance certificate

Awareness of tariffs applied to imported goods

Determination if a ‘drawback’ on paid duties is applicable
(drawback is applied when goods are imported and then re-exported after some value-added process has been applied.  Drawback is commonly used when importing and re-exporting between the US and Mexico)

The following fee based online websites can prove useful if you want to import yourself.  Many customs brokers and freight forwarders use these web-based applications to ensure accurate submission of import documentation to the Customs and Border Protection (CBP) agency for security tracking of various shipments.   Third Party logistic providers can also provide clients with up to date cost analysis, logistics and import compliance information.

Smart Border – www.smartborder.com
Trade Beam – www.tradebeam.com
Nextlinx – www.nextlinx.com

Other logistic considerations:

There are a variety of end results for your imported products.  Some may act as manufacturing components for other goods while others come as is and ready for resale. Determine which route your product will take before you import.  If your merchandise is imported as a manufacturing component, it may be allowed to be imported into a ‘Foreign Trade Zone’ if it is being assembled for a product that will be re-exported.

Because a Foreign-Trade Zone is considered to be outside the normal channels of commerce in the United States and the U.S. Customs territory, making use of these limited ‘zones’ can eliminate tariffs assessed on your goods.  To find out if your imports for manufacture and/or re-exportation are applicable and to locate Foreign Trade Zones in the US, access the Foreign-Trade-Zone Online Resource Center at www.foreign-trade-zone.com and the National Association of Foreign Trade Zones at www.naftz.org.

There are also certain packaging regulations that must be observed in order to expedite importation.  If a shipment arrives that has been packaged incorrectly it can be stopped at customs.  For in depth guidelines on packaging ask you third party or port of entry authorities.

Smaller shipments can often be made by air while larger shipments may necessitate travel by sea or possibly rail or road depending upon origin of shipment.  For larger transactions, there are a variety of  solutions that assure that once the product has entered into US Customs notification has been made ahead of time and when the goods have reached the port destination there is customs broker ready to process the shipment who can offer the following services:

Arrange shipment details

Take charge of cargo upon arrival at the port or airport

Process all documentation of imports

Handle any additional packaging requirements

Track shipments

Packaging and Insurance:

Once you have decided how your goods will be imported make sure that their packaged correctly and insured.  This is where clear communication between you and your seller is important.  Make sure the foreign seller understands all US Customs requirements.  Marking your merchandise correctly is also critical for making sure it is not only processed properly but also distinguishable from other products at Customs.  At Customs they can search any part of your shipment if they deem it necessary.  Mis-marked items can hold up the importation process at Customs which could delay your shipment for days. Contact your chosen shipping authority for packaging requirements.

Depending upon what route you take to import your goods, each method of transport has different insurance options. There are a number of insurance options.  Contact your regional TradePort Service Center for qualified marine insurance companies.

Third party logistics managers can prove very helpful in tracking down shipments when they did not arrive at the expected time or place, as well as tracking them en route.

The National Customs Brokers and Forwarders Association of America www.ncbfaa.org can link you up to Customs Brokers and Freight Forwarders who can help you import your goods.  They offer informational resources on their websites with most of the information you will need towards finding the right customs broker or freight forwarder for your shipment.

The following websites are resource alternatives that can help you with the technical aspects of the logistics industry including directories of custom brokers and freight forwarders.

American Association of Port Authorities – www.aapa-ports.org
International Air Cargo Association – www.tiaca.org
Airport Brokers Corporation –  www.airportbrokers.com
Council of Logistics Management – www.clm1.org
Professional Association of Exporters and Importers – www.paei.org


The third step in the importing process is to decide a foreign source of the product you wish to import.  Determining the source of your imported goods can vary due to product differentiation. Some importers will be able to make use of the Free Trade Area arrangements that make importing from countries like Mexico and Canada tariff free.
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Researching online trade lead listings can often lead to foreign sources of products required to import. Traveling can spur importing ideas and also identify potential foreign sellers.

The following trade lead sites map out which country may be exporting a particular product which can help you determine the ‘source’ country.  When researching ‘offers to sell’ trade leads make sure you find out all you can about the foreign exporter to properly qualify them for future business.
Trade Lead Qualification:

Ask for banking references
Obtain business references
Evaluate company’s web site and company infrastructure

Be wary of those exporters who do not have any tangible evidence that they have a record of success. You can also use various trade promotion centers such as the TradePort Service Centers in California Assistance Centers to assist you when qualifying trade leads.
Trade Lead Resources on the Internet:

Import Trade News USA, www.fita.org/

Busy Trade Online www.busytrade.com

The Internet International Business Exchange, or IMEX at www.imex.com offers comprehensive trade leads and global market research information

Trade Leads Online www.tradelead.com

Business Patrol Online www.businesspatrol.com

The World Trade Centers Association www.wtca.com

Foreign Products Trade Directory, www.cobleintl.com

Alibaba, at www.alibaba.com is a fee based global link for exporters looking to advertise their products, locate buyers and verify trade leads.

The American Chamber of Commerce at www.amcham.org has offices throughout the world that act as helpful tools for making contacts and accessing governmental advice for your specific country of interest.

An excellent source for researching background and industry analysis for a particular country is www.worldtraderef.com

The Global Trade and Technology Network is a U.S. Agency for International Development (USAID) sponsored website with qualified trade leads from developing countries.  www.usgtn.net

The BuyUSA website is a directory of online trade leads and business opportunities published by the U.S. Foreign Commercial Service of the USDOC www.buyusa.gov


International trade continues to grow every year as nations expand their global sales and new nations join in. Today, over 225 nations are active in trade resulting in over $9 Trillion dollars in global business every year. Trade related financial services have developed and expanded in depth, complexity and effectiveness to support the expansion of world trade. Many trade finance options are now available. However, in North America the Small to Mid- sized Enterprises (SME) trading community is relatively unaware of many of the more sophisticated and/or the sources of the more effective trade finance services. Traders commonly believe that the major international banks are the primary providers of these services. For the SME community this is no longer the case. A fragmented market of trade finance organizations has grown over the last 20 years to fill the void left by the major international banks which retreated from trade finance service in the 1980’s.

This tutorial is intended as an introduction to import trade transactions settlement terms and the key types of import trade finance. Understanding these options will help businesses select the most appropriate and effective import trade financing to fit a company’s unique financial circumstances.

For additional information and assistance, TradePort makes available the services of Trade & Export Finance Online (TEFO), a trade finance service provider for international trade businesses. TEFO structures trade deals and provides access to a variety of trade finance resources and capital for small and mid-sized enterprise companies (SMEs), their buyers, suppliers and partners worldwide. Find out more about TEFO.
Introduction – Importing

As a result of major changes during the last two decades in the structure of the global economy, the US has largely recognized that liberal trade policies are on balance good for domestic consumers, workers, and businesses alike. The encouragement of imports has generally led to the vitalization of economies in other countries and, in return, greater de- mand for US products. In addition, imported products offer US consumers a wide range of choices of products to buy, while the competition between foreign and US products helps keep domestic prices down. Because US imports have outpaced exports during the last two decades, the current US focus is on increasing exports and opening new markets abroad for US products. Nevertheless, the US remains the world’s top import market.
Settlement of Import Trade Transactions

Various trade terms are available to balance the trade transaction risks for both the importer and exporter. As an importer/distributor you will wish to negotiate the most favorable terms of purchase with your overseas supplier. You will negotiate terms of purchase to ensure that you receive your import purchase in the right quantity, right quality, at the right price and on time. At the same time you can expect your overseas supplier to negotiate terms that will minimize potential risks – particularly the risk of nonpayment. Import trade transactions can be structured in a number of ways. The structure used in a specific transaction reflects how well the participants know each other, the countries involved, and the competition in the market.

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

1. Consignment Purchase

In a consignment purchase arrangement, the importer/distributor makes payment to the overseas supplier only after sales to end user is made and payment received. Consignment purchase terms can be the most advantageous to an importer/distributor. It is also considered the most risky term for the overseas supplier.
2. Cash-in-Advance (Pre-Payment)

Under these terms of purchase, the importer must send payment to the supplier prior to shipment of goods. The importer must trust that the supplier will ship the product on time and that the goods will be as advertised. Basically, Cash-in- advance terms place all of the risk with the importer/buyer. An Importer may find his seller requiring prepayment in the following circumstances:

(1) The Importer has not been long established.

(2) The Importer’s credit status is doubtful, unsatisfactory and/or the country political and economic risks are very high.

(3) 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.

There are advantages and disadvantages with Cash in Advance terms. This method of payment involves direct Buyer/Seller contact without commercial bank involvement and is therefore inexpensive. However, the Buyer faces a very high degree of payment risk while retaining little recourse against the Seller for poor quality goods or incorrect or incomplete documentation. In addition there is a possibility that an unscrupulous Seller may never deliver the goods even though the Buyer has made full prepayment. Although pre-payment terms eliminates virtually all risks to the seller these terms can place the seller at a competitive disadvantage.
3. Down Payment

The Buyer pays the Seller a portion of the cost of the goods “in advance” when the contract is signed or shortly thereafter. There are advantages and disadvantages of down payment terms. The down payment method induces the Seller to begin performance without the Buyer paying the full agreed price in advance. The disadvantage is that there is a possibility the Seller may never deliver the goods even though it has the Buyer’s down payment. This option must be combined with one of the other options to cover the full cost of goods.
4. Open Account

Unsecured Open Account terms allows the importer to make payments at some specific date in the future and without the buyer issuing any negotiable instrument evidencing his legal commitment to pay at the appointed time. These terms are most common when the importer/buyer has a strong credit history and is well-known to the seller. The buyer may also be able to demand open account sales when there are several sources from which to obtain the seller’s product or when open account is the norm in the buyer’s market. This mechanism offers the seller no protection in case of non-payment. However, an exporter can structure his open account sale transaction to minimize the risk of non-payment. For example, the exporter can reduce the repayment period and retain title to the goods until payment is made. Even then, it is difficult to enforce this especially if the goods have been either resold by the buyer or consumed in some other processing activity. Despite the dangers, open account terms with extended dating are becoming more common in international trade. Exporters that offer open account terms are increasingly obtaining credit insurance to mitigate the potential open account credit risks.

There are many advantages and disadvantages 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.
5. Documentary Collections

Collections terms offer an important bank payment mechanism that can serve the needs of both the exporter and importer. Under this arrangement, the sale transaction is settled by the bank through an exchange of documents, thus enabling simultaneous payment and transfer of title. The importer is not obliged to pay for goods prior to shipment and the exporter retains title to the goods until the importer either pays for the value of the draft upon presentation (sight draft) or accept to pay at a later date and time (term draft). The principal obligations of parties to a documentary collection arrangement are set out in the guidelines of the “Uniform Rules for Collection” (URC) drafted by the Paris- based International Chamber of Commerce.
Role of Banks in Documentary Collections

Banks play essential roles in transactions utilizing documentary collections as follows:

Remitting Bank: This is the exporter’s bank and acts as the exporter’s agent in collecting payment from the importer. It basically transmits the exporter’s instructions along with the terms of the draft to the importer’s bank. The bank does not assume any risks and does not undertake to pay the exporter but can influence to obtain settlement of a bill.

Collecting Bank: This is the importer’s bank and takes up the role of ensuring that the buyer pays (or accept to pay) for the goods before shipping documents are released to him.

Generally, the banks in the transaction control the flow and transfer of documents and regulate the timing of the transaction. They must ensure the safety of the documents in their possession but are not responsible for their validity and accuracy.
Variations of Documentary Collections

This form of trade settlement comes in two forms – Documents against Payment and Documents against Acceptance. Each of these forms of collections may be either “clean” (financial document alone) or “documentary” (commercial documents with or without a financial document). A financial document is a check or a draft; a commercial document is a bill of lading or other shipping document. A clean collection involves dollar-denominated drafts and checks presented for collection to U.S. banks by their foreign correspondents. In a documentary collection, the exporter draws a draft or bill of exchange directly on the importer and presents this draft, with shipping documents attached, to the bank for collection.
Cash against documents/Sight Drafts

In a transaction on documents against payment, the exporter releases the shipping documents to the importer only on payment for the goods. In this arrangement, the exporter retains title to goods on board and may decide to refuse their discharge if payments are not received. This arrangement which demands the buyer’s immediate payment of the exporter relies on a sight draft drawn on the buyer.
Document against Acceptance/Term Drafts

An exporter may decide to release shipping documents to a buyer on acceptance of the exporter’s drafts. In this case, the importer is under an obligation to pay at a future date. This method satisfies both parties since the importer is able to receive the goods before payment and the exporter has a firm assurance (but no guarantee) that payment will come at a specified future date.
Flow of Transaction in a Documentary Collections Deal

Exporter/drawer and Importer/drawee agree on a sales contract, including payment to be made under a Documentary Collection.
The Exporter ships the merchandise to the foreign buyer and receives in exchange the shipping documents.
Immediately thereafter, the Exporter presents the shipping documents with detailed instructions for obtaining payment to his bank (Remitting bank).
The Remitting bank sends the documents along with the Exporter’s instructions to a designated bank in the importing country (Collecting Bank).
Depending on the terms of the sales contract, the Collecting Bank would release the documents to the importer only upon receipt of payment or acceptance of draft from the buyer. (The importer will then present the shipping documents to the carrier in exchange for the goods).
Having received payment, the collecting bank forwards proceeds to the Remitting Bank for the exporter’s account.
Once payment is received, the Remitting bank credits the Exporter’s account, less its charges.

Advantages and disadvantages of Documentary Collection

The major advantage of a “cash against documents” payment method for the Buyer is the low cost, versus opening a Letter of Credit. The advantage for the Seller is that he can receive full payment prior to releasing control of the documents, although this is offset by the risk that the Buyer will, for some reason, reject the documents (or they will not be in order). Since the cargo would already be loaded (to generate the documents), the Seller has little recourse against the Buyer in cases of non-payment. A payment against documents arrangement involves a high level of trust between the Seller and the Buyer and should be adopted only by parties well known to each other.
Risks in Documentary Collections
For the Exporter

If it is a sight draft, the exporter will reduce the risk of non-payment but will not eliminate it totally since the importer may not be in a position to pay for the goods or may not be able to procure sufficient foreign exchange to make the payment. In this case the exporter may be forced to either call back the goods or negotiate sale to some other interested party, which may be at a reduced rate.

In the case of term draft, the risk to the exporter is higher since the foreign buyer will take possession of the goods and may not pay at due date, forcing therefore the exporter to try and collect payment from the foreign buyer in the foreign buyer’s home country.
For the Importer

The importer faces the risk of paying for goods of sub-standard quality or even with shortages. In such a circumstance, it would take some time to get refunds from the exporter. It could also happen that the exporter refuses to make refunds, leading the importer to lengthy legal proceedings.
When to use Documentary Collections?

Since Documentary Collections transactions entail some measure of trust, it advisable to use the mechanism when the following conditions apply:

When the exporter and importer have a well established relationship
When there is little or no threat of a total loss resulting from the buyer’s inability or refusal to pay
When the foreign political and economic situation is stable
When a letter of credit is too expensive or not allowed

6. Letter of Credit

A letter of credit is the most widely used trade finance instrument in the world. It has been used for the last several hundred years and is considered a highly effective way for banks to transact and finance export and import trade. The letter of credit is a formal bank letter, issued for a bank’s customer, which authorizes an individual or company to draw drafts on the bank under certain conditions. It is an instrument through which a bank furnishes its credit in place of its customer’s credit. The bank plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves.

Therefore a letter of credit can not prevent an importer from being taken in by an unscrupulous exporter.

The Uniform Commercial Code and the Uniform Customs and Practices for Documentary Credits published by the United States Council of the International Chamber of Commerce set forth the covenants governing the issuance and negotiation of letters of credit. All letters of credit must be issued:

In favor of a specific beneficiary,
for a specific amount of money,
in a form clearly stating how payment to the beneficiary is to be made and under what conditions, and
with a specific expiration date.

Role of Banks in Documentary Letters of Credit

Compared to other payment forms, the role of banks is substantial in documentary Letter of Credit transactions.

The banks provide additional security for both parties in a trade transaction by playing the role of intermediaries. The issuing bank working for the importer and the advising bank working for the exporter.
The banks assure the seller that he would be paid if he provides the necessary documents to the issuing bank through the advising bank.
The banks also assure the buyer that his money would not be released unless the shipping documents evidencing proper and accurate shipment of goods are presented.

Types of Letters of Credit – 1

A letter of credit may be of two forms: Revocable or Irrevocable
Revocable L/C

This is one that permits amendments or cancellations any time by the issuing bank. This means that the exporter can not count on the terms indicated on the initial document until such a time as he is paid. This form is rarely in use in modern day trade transactions.
Irrevocable L/C

Such a letter of credit cannot be changed unless both buyer and seller agree to make changes. Usually an L/C is regarded as irrevocable unless otherwise specified. Therefore, in effect, all the parties to the letter of credit transaction, i.e. the issuing bank, the seller and the buyer, must agree to any amendment to or cancellation of the letter of credit. Irrevocable letters of credit are attractive to both the seller and the buyer because of the high degree of involvement and commitment by the bank(s). By the 1993 revision of the UCP, credits are deemed irrevocable, unless there is an indication to the contrary.
Types of Letters of Credit – 2

A letter of credit may be of two forms: Confirmed or Unconfirmed.
Confirmed L/C

If the exporter is uncomfortable with the credit risk of the issuing bank or if the country where the issuing bank is situated is less developed or politically unstable, then as an extra measure, the exporter can request that the L/C to be confirmed. This would add further comfort to the transaction; an exporter may request that the L/C be confirmed. This is generally by a first class international bank, typically the advising bank (now the Confirming Bank). This bank now takes the responsibility of making payments if no remittance is received from the issuing bank on due date.
Unconfirmed L/C

In contrast, an unconfirmed credit does not require the advising bank to add its own payment undertaking. It therefore leaves the liability seller with the issuing bank. The advising bank is merely as a channel of transmission of documents and payment.
Methods of Settlement

The documentary letters of credit can be opened in two ways:

Sight Letter of Credit: A Sight Letter of Credit is a credit in which the seller obtains payment upon presentation of documents in compliance with the terms and conditions.
Time Draft or Usance Letter of Credit: A Time Draft or Usance Letter of Credit is a credit in which the seller will be paid a fixed or determinable future time. A time Draft or usance letter of credit calls for time or usance drafts to be drawn on and accepted by the buyer, provided that documents are presented in good order. The buyer is obligated to pay the face amount at maturity. However, the issuing bank’s obligation to the seller remains in force until and unless the draft is paid.

Financing Importers through Letters of Credit

While the L/C can be used as a payment mechanism, it can also be used to provide financing to the applicant (importer). Deferred and Acceptance credits (i.e. term credits) are considered to be financing instruments for the importer/buyer. Both payment structures provide the importer/buyer the time opportunity to sell the goods and pay the amount due with the proceeds.

Under the Deferred Payment structure payment is made to the seller at a specified future date, for example 60 days after presentation of the documents or after the date of shipment (i.e. the date of the bill of lading).

Under the Acceptance structure the exporter is required to draw a draft (bill of exchange) either on the issuing or confirming bank. The draft is accepted by the bank for payment at a negotiated future fixed date. This gives the importer the potential time needed to sell the product and pay off the Acceptance at due date. For example, payment date under an acceptance credit may be at sight or after 90 days from presentation of the documents or from the shipment of goods.
Special Note on Documentary Letters of Credit

Documentary Letters of Credit hinge much on the appropriateness of documents. Banks involved in the transaction do not need to know about the physical state of the goods in question but concern themselves only with documents. If proper documents are presented, banks will make payment whether or not the actual goods shipped comply with the sales contract.

Thus, special care needs to be taken in preparation of the documents since a slight omission or discrepancy between required and actual documents may cause additional costs, delays and seizures or even total abortion of the entire deal.
(1) Documents associated with an L/C

Documents are the key issue in a letter of credit transaction. Banks deal in documents, not in goods. They decide on the basis of documents alone whether payment, negotiation, or acceptance is to be effected. A single transaction can require many different kinds of documents. Most letter of credit transactions involve a draft, an invoice, an insurance certificate, and a bill of lading. Transactions can culminate in sight drafts or acceptances. Because letter of credit transactions can be so complicated and can involve so many parties, banks must ensure that their letters are accompanied by the proper documents, that those documents are accurate, and that all areas of the bank handle them properly.

The four primary types Documents associated with an L/C are as follows:

Transfer documents
Insurance documents
Commercial documents
Other documents

Transfer documents are issued by a transportation company when moving the merchandise from the seller to the buyer. The most common transfer document is the Bill of lading. The bill of lading is a receipt given by the freight company to the shipper. A bill of lading serves as a document of title and specifies who is to receive the merchandise at the designated port (as specified by the exporter). It can be in nonnegotiable form (straight bill of lading) or in negotiable form (order bill of lading). In a straight bill of lading, the seller (exporter) consigns the goods directly to the buyer (importer). This type of bill is usually not desirable in a letter of credit transaction, because it allows the buyer to obtain possession of the merchandise without regard to any bank agreement for repayment. A straight bill of lading may be more suitable for prepaid or open account transactions. With an order bill of lading the shipper can consign the goods to the bank, which retains title until the importer acknowledges liability to pay. This method is preferred in documentary or letter of credit transactions. The bank maintains control of the merchandise until the buyer completes all the required documentation. The bank then releases the bill of lading to the buyer, who presents it to the shipping company and gains possession of the merchandise.

Insurance documents, normally an insurance certificate, cover the merchandise being shipped against damage or loss. The terms of the merchandise contract may dictate that either the seller or the buyer obtain insurance. Open policies may cover all shipments and provide for certificates on specific shipments.

Commercial documents, principally the invoice, are the seller’s description of the goods shipped and the means by which the buyer gains assurances that the goods shipped are the same as those ordered. Among the most important commercial documents are the invoice and the draft or bill of exchange. Through the invoice, the seller presents to the buyer a statement describing what has been sold, the price, and other pertinent details. The draft supplements the invoice as the means by which the seller charges the buyer for the merchandise and demands payment from the buyer, the buyer’s bank, or some other bank. Although a draft and a check are very similar, the writer of a draft demands payment from another party’s account.

In a letter of credit, the draft is drawn by the seller, usually on the issuing, confirming, or paying bank, for the amount of money due under the terms of the letter of credit. In a collection, this demand for payment is drawn on the buyer. The customary parties to a draft, which is a negotiable instrument, are the drawer (usually the exporter), the drawee (the importeror a bank), and the payee (usually the exporter), who is also the endorser. A draft can be “clean” (an order to pay) or “documentary” (with shipping documents attached).

A draft that is negotiable:

Is signed by the maker or drawer
Contains an unconditional promise to pay a certain sum of money
Is payable on demand or at a definite time
Is payable to order or to bearer
Is two-name paper
May be sold and ownership transferred by endorsement to the “holder in due course.”

The holder in due course has recourse to all previous endorsers if the primary obligor (drawee) does not pay. The seller (drawer) is the secondary obligor if the endorser does not pay. The secondary obligor has an unconditional obligation to pay if the primary obligor and the endorser do not, therefore the term “two-name paper.”

Other documents include certain official documents that may be required by governments in order to regulate and control the passage of goods through their borders. Governments may require inspection certificates, consular invoices, or certificates of origin. Transactions can entail notes and advances collateralized by trust receipts or warehouse receipts.
Import Trade Finance Services

Pre-Import Working Capital Program for Importers to fund the purchase of materials, services, and labor to fulfill import sales contracts. Find out more from TEFO about the Pre-Import Working Capital Program

Accounts Receivable Factoring for Importers provides for the purchase at discount of an Importer’s accounts receivable representing sales to pre-approved North American Buyers. Find out more from TEFO about Accounts Receivable Factoring for Importers.

Asset Based Line of Credit for Importers provides financing of imports by leveraging a company’s equity in current and fixed assets advancing funds based on a percentage of the firm’s qualified receivables, inventory and other assets. Find out more from TEFO about Asset-Based Financing.

Inventory Financing for Importers provides for the financing of Importer’s Inventory pre-sold to credit worthy North American Buyers. Find out more from TEFO about Inventory Financing.

Purchase Order Financing for Importers provides a solution to finance the purchase or manufacture of goods that have been pre-sold to an overseas creditworthy customer. Find out more from TEFO about Purchase Order Financing for Importers.

Purchase Order Confirmation Facility provides an overseas supplier the assurance that they will be paid for their shipment of product to an Importer prior to the importer receiving any funds from the proceeds of an Accounts Receivable finance credit facility. Find out more from TEFO about the Purchase Order Confirmation (POC) facility.

Equipment Leasing for Importers provides the professional expertise to facilitate the direct importation and lease of equipment to be acquired by North American companies. Find out more from TEFO about Import Lease Financing.

Import Letters of Credit provide importers the most widely used and accepted international trade payment mechanism and finance instrument. By structuring Letter of Credit terms to allow Deferred Payment or Trade Acceptance an L/C can be utilized to provide financing to the importer. Find out more from TEFO about Import Letter of Credit Financing.

Accounts Receivable Management Service provides Importers with on-line access to account information, A/R analysis reports, critical credit analyses, monitoring of credit limits, collection, receiving, posting, and depositing payments. Find out more from TEFO about Accounts Receivable Management Service.

Debt Collection Program for Overseas Suppliers and Importers providing professional legal collections of past due debt obligations from Buyers in North America. Find out more from TEFO about Debt Collection Program Service.

For more advice and services throughout the world on legal and tax matters, correspond with an international tax specialist!



Homeland Security is now an important aspect when importing products. The ‘Customs Small Business Program’ is a great place to access important security issues when importing in www.cbp.gov

The US Customs Department has developed strict guidelines for importing products into the US.  The US Customs and Border Protection (CBP) are now under the US Department of Homeland Security (www.dhs.gov).  Increased domestic security has created new regulations for importing into the US. One of the new regulations is the 24 hour rule of the Automated Manifest System or AMS.  This 24 Hour AMS rule requires presentation of the cargo declaration 24 hours before lading of the vessel.  You must insist that foreign exporters adhere to US Department of Homeland Security regulations or you can find yourself with delays and troubles.

The Customs and Border Patrol (CBP) is now implementing the C-TPAT or Customs Trade Partnership Against Terrorism.  This partnership is between customs and industry leaders regarding strengthening supply chain security. Understanding US Customs regulations before you make importing arrangements will help map out the most expedient method for importing and distributing your merchandise once it arrives.

The following websites are specific, governmental agency websites.  They are informative for particular regulation and up to date international trade law information.  The Federal Maritime Commission at- www.fmc.gov  and the International Trade Commission at the www.usitc.gov and The United States Trade Representative at www.ustr.gov

For assessment of regulatory risks associated with agricultural imports in particular, access the US Department of Agriculture at www.usda.gov.  To learn more about regulations regarding importing Animal and Plants, check out the Animal and Plant Health Inspection Services at www.aphis.usda.gov.

Source: http://www.tradeport.org/index.php/trade-toutorials-130

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