With UK companies continually striving to improve their supply chain management, many are finding that importing goods or raw materials is a potential path towards achieving this goal. So it is not surprising that in December 2014 imports into the UK reached an all-time high of £48,871 million*.
There are real advantages to be gained from importing from foreign markets. For example, a varied quality of products as each country has its own specialties and strengths, and potential competitive advantage as the conditions in foreign markets often allow for cheaper production costs.
When trading with an international supplier and importing goods or raw materials, the following factors should be considered:
The reliability of a supplier and the quality of their product is essential. It is therefore crucial before you do business to do your homework on any potential supplier. Once a supplier who is a good match for your business has been identified, find out as much as you can about the supplier, their reliability and quality that they offer. The ethical integrity of suppliers will also be a consideration and any negative press in this area could cause real economic damage to a business.
It is important to carry out due diligence to ensure that the supplier is legitimate and can deliver a quality product. It is also worth checking the reliability of any sub-contractors to which the supplier may outsource any work. If it is practicable, an on-site inspection may help to address any concerns about the supplier before a contractual relationship is established.
Is it worth appointing an agent?
Appointing an agent or representative to act on your behalf in the foreign market may help to reduce any cultural or linguistic differences during the negotiations stage. The agent should have a good understanding of the local market and a network of contacts, and importantly they can visit the supplier’s site when necessary and inspect the goods. If an agent is appointed, make sure the terms of that appointment are clear and agreed in writing if possible.
Requirements on customs duties, VAT and excise present additional considerations when importing, so it is important to familiarise yourself with the laws particular to your chosen market and get the necessary tax advice from specialists in this area.
If the business is taking goods from EU countries, a commodity code will be needed to classify the goods. When importing goods from non-EU countries you must declare the imports to HMRC and pay VAT and duty on them, as well as obtaining a commodity code. An import licence may be required regardless of whether goods are coming from within the EU or outside the EU depending on the nature of the goods.
Keep things legal
When dealing with any supplier, whether domestic or international, it is vital that a written agreement between the parties correctly reflects all aspects of trading; nothing should be left to chance.
Have the agreement prepared or reviewed by a solicitor so that is it clear and unambiguous. Some key provisions which should be included are as follows:
- Specify what goods are being bought.
- Are services as well as goods being provided by the supplier?
- How much will you pay? In which currency? At which exchange rate?
- Payment method. When and how will payment be made?
- How will the goods be transported?
- Import and export licences. Which party is to be responsible for obtaining any import and export licences and other consents?
- Trading terms. Shipping procedures are complex and consideration needs to be given to exactly who is responsible for shipping costs, duties and custom related formalities. Incoterms is a standardised set of international trade terms published by the International Chamber of Commerce( www.practicallaw.com/A36307) (ICC). These commonly used terms allocate responsibility and liability between sellers and buyers situated in different countries. Do you understand these terms and are they to be incorporated into the contract?
- Be clear about which party bears the risk, including damage to the goods at each stage of the process.
- When is ownership of the goods intended to pass?
- Duration and Termination. How long is the agreement to last? Be sure to set out the rights of the parties to terminate that agreement, including for persistent breaches of the agreement.
- Governing law and jurisdiction. If there is a dispute under the agreement, where would the proceedings be heard and which law will apply? UK companies should seek to agree that if a dispute arises, the courts of England and Wales will hear the dispute and English law will apply. If this is not the case, get advice from lawyers who are expert in the relevant law and jurisdiction.
Build a solid relationship with the supplier
Make sure you monitor the new supplier relationship; this will make it easy to identify areas for possible improvement. Schedule progress reviews with the supplier. If there have been any problems, decide together how to resolve them.
If everything has been working smoothly and profitably, you may want to extend the level of business you are doing together and you may be in a position to negotiate better terms!