One of the most complicated parts of the importing process is to accurately cost products. Quotes are usually challenging to decipher, because suppliers differ in the amount of risk that they want to cover, exchange rates fluctuate and there are a lot of hidden costs that need to be taken into consideration.
Not all costs are usually mentioned in a final quote, so it is important to ask the right questions and do in-depth homework before going over to action. Mistakes in your costing calculations can determine whether you have a viable, profitable business or not.
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Add up all the below and you will get an accurate costing price for an imported product:
Most importers forget that a purchase price is often quoted in dollars or another foreign currency. When converting to Rand, it is important to add in a margin to protect oneself against a weakening currency.
You don’t want to be caught off-guard with expenses that you didn’t budget for, just because of unexpected fluctuations in exchange rates.
Ensure that you get the full costs to transport your goods from the production factory to your address. It might sound simple and straight-forward, but international suppliers can either choose to sell goods FOB (Free on Board) or CIF (Cost, Insurance and Freight), and the difference between the two can have a significant effect on your bank balance.
FOB means the seller covers the cost and risk up to loading your goods on the ship or plane. You as importer are therefore responsible for the remaining transport, insurance and clearing costs.
CIF means the seller covers the transport and insurance costs until the cargo is off-loaded at the destination terminal. The buyer is liable for clearing, transport and insurance costs from that point onwards.
In order to ensure your whole length of freight is covered, it is a good idea to let your local freight company speak to the seller’s freight company so that you are not left with any surprises. Be sure to know who is responsible for which costs, and get it in writing if possible.
Insurance for most types of cargo is generally good value for money. Due to the low rate of claims compared to other industries, freight insurance can offer relatively low premiums for high value.
Many buyers decide on insurance based on the value of their cargo but do not realise that, if the cargo ship should sink, they are also liable for a percentage of the cost of the ship based on their percentage of the total cargo.
It may therefore be worth protecting yourself against a mountain of costs that could have been prevented by taking out insurance.
Ensure that you determine the correct duty tax that you will pay before you decide on importing. There is nothing worse than expecting to pay a 10% duty tax and, upon clearing your goods, discovering the duty tax is 30%.
The best way to ensure you have the right duty tax is to get the correct tariff code. Each tariff code is associated with a specific duty tax. A copy of the tariff book is available in the Trade Logistics Members Area. Membership is currently free for a limited period. You can also request the tariff code from your supplier and get a professional opinion on what the tariff code should be.
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You should also not forget to include VAT in your price calculations. VAT is payable when goods are cleared at customs. And the good news is you can claim it back if you are VAT registered.
You can calculate the VAT as follows:
- Product price on commercial invoice (e.g. R100)
- + 10% of commercial invoice (e.g. R10)
- + duty tax (e.g. if duty tax percentage is 20% then R20 is added)
- = Total (e.g. R130). 14% VAT is levied on the Total amount.
The above calculation can be done automatically on our Import Duty and VAT calculator in the Trade Logistics Member’s area.
If you have taken all these factors into consideration you can be confident that you should not have any unpleasant financial surprises and that your import business will be properly set-up, taking all financial risks into consideration and managing it effectively to guarantee ongoing success.