Depending on the type of product you are importing, you may find that large sums of cash are tied up for a long time. This coupled with a fluctuating exchange rate can make for unpredictable and difficult cash flow.
If you are ordering products from a manufacturer, you will in all likelihood have to pay a deposit (around 20% to 30% of the cost) upfront. This is a cost you will need to carry for the period during which your product is being manufactured. Usually the outstanding balance is due before the goods are shipped.
If you are sea freighting, which is by far the cheaper option, you will need to wait around six weeks before your products are delivered. Only when they arrive will you be able to sell them and get paid which can take another 60 days, depending on who your customer is and how you invoice.
Effectively, huge sums of money can be tied up for months at a time. For this reason, importing can be an incredibly costly and time consuming process that requires a large amount of capital to be available.
Work out how long the process will take from the time you place the overseas order or purchase the overseas product, to the time that you receive payment from your end-customer, and factor this into your cash flow.
Many exporters also factor their invoices. This is an expensive solution but depending on your operation and the type of product, it may be a necessary one.
A financial institution that specialises in importing will pay a percentage of your invoice and then pay the remainder when the client pays them. They charge interest, administrative fees on the value of the invoice and some have a minimum monthly charge whether you are factoring invoices that month or not. It pays to shop around for the best invoice factoring deals.
5 Simple Steps to Importing into South Africa for Small Business Owners
At TNT, we often come across concerned small business owners who need some guidance around the basics of importing. The first step is simple – get the paperwork right.
You have found the perfect product abroad, which will take South Africa by storm. In this exhilarating process you are excited, yet overwhelmed because the importing process is complicated and daunting.
Related: Importing Documentation
Given the various rules and regulations, which differ depending on the geographical spread of your product’s origins, this is hardly surprising.
1. First things first: Get the basics right
The very first step will be for you to have a commercial invoice to import. Importantly this should not be a proforma invoice.
This commercial invoice will give the Customs and Border Protection (CBP) officer a thorough description of what you are importing. This includes a detailed description, precise quantity and the true financial value of your product.
2. Accuracy is key: Don’t skimp on the small details
The description of the goods being imported needs to be clear, precise and non-generic. For example, instead of stating that you are importing a man’s suit, indicate the exact materials it is made of, whether it is 100% cotton, polyester etc.
Reason being, different materials are charged at different duty rates. An accurate description will prevent confusion and delay in the long run.
You will also need to specify whether the product is a sample of not, and SARS will check if this has been specified. Samples are mutilated goods, for example a left shoe with drilled holes, or a shirt with a cut out diamond in the back.
Stating the accurate commercial value of your products or samples needs to also be stated correctly, as anything found to be undervalued could lead to a hefty fine or trouble with the law.
3. Work hand-in-hand with SARS
Speaking of SARS, the next stage will be to become a registered importer through their straightforward website. When you register, you receive an importer’s code. With this code you will be able to accurately import goods regularly.
SARS will then use the code to check your goods against the declared price and for that reason you must ensure that you are honest and accurate.
If you are an irregular importer, you may apply as such, whereby you will be allowed to import products three times a year.
4. Be knowledgeable around the country of origin
In China alone there are 55 states, each with their own unique rules and duty fees. There is therefore a high chance for suppliers to under-declare the goods for importation.
In this case, it is essential to work hand in hand with a clearing agent from the get-go to ensure that they are aware of the veritable value of the goods being imported. It will then be more likely that your commercial invoice will reflect the true value of your product.
If your products have been under-declared you could face penalties such as fines or delays that could take anything between 3 and 18 working days
5. Caution: Avoid these products
There are certain products that are not authorised to enter South Africa. A few examples include:
- Second hand cars
- Certain medications that have not been approved by the medical control council
- Plant material without a license
- Certain animal products – including animal skins
- Certain liquids may not be airfreighted.
If you are importing any goods that might be considered Dangerous Goods (flammable items for example) you must declare these items as such and make sure you provide a Material Safety Data Sheet for their import.
Related: Establishing Trading Relationships
From an exportation perspective, there are military embargoes in certain countries. For example, South Africans cannot export equipment with GPS capabilities to countries such as Iran for the purpose of anti-terrorism support.
Another example is that alcohol may not be exported to certain countries such as Saudi Arabia. South African businesses need to be cognisant of these regulations and should seek consultation from export councils when exporting goods out of the country if uncertain.
Hopefully these simple steps can provide you with a sense of comfort when embarking on your new business venture. The TNT Express call centre can answer any further queries and you may contact them on 0860 122 441.
Related: Getting an Import Permit
Watch Out For These Trade Nightmares
Take the following safety measures to ensure you do not end up in an unmanageable mess.
When asked, “What do you fear most about importing or exporting goods?”, many things come to mind. But, the two nightmares most first-time importers or exporters dread are damaged cargo and fraudulent suppliers.
The following two nightmares should be on your ‘Watch Out For’ list.
Nightmare 1: Damaged Cargo
There are a few ways cargo can get damaged during shipping. The most common reasons are that either the goods were improperly packed, or the containers got damaged in the transportation process.
Losses from improperly packed containers add up to $5 billion a year worldwide. Traders should ensure that containers are properly packed and that no damaged goods are stored in a container.
Containers aren’t invincible and experience a variety of extreme weather conditions. For this reason, goods need to be packed in such a way that they won’t get damaged in transit. Guidelines on how to pack cargo to survive international shipping is available here.
What do you do when you receive damaged goods?
1. Inspect the container before opening
Check the container and seal numbers against the documents to make sure that the correct container arrived at the destination. Note any damage or seal number discrepancies on the container.
2. Sign and date the note with details of the damage or discrepancy
3. Contact the carrier immediately
Request that a representative is sent to inspect the damage.
4. Notify all parties who handled the container
As well as the marine insurer of the problem and the possibility of a claim. It will be sensible to always apply for cargo insurance.
Very important: Do not open or unload the container before the carrier’s representative arrives.
Nightmare 2: Fraudulent Suppliers
The ease of purchasing goods on the Internet for trade purposes has made finding international suppliers fairly effortless. Unfortunately, with the increase in international sales has come an increase in international scammers targeting uninformed, optimistic buyers.
Some of the most common scams include the disappearance of the seller after payment or substandard goods have been supplied.
The buyer is not, however, totally vulnerable as there are a number of options that he can employ in order to protect himself from being scammed.
1. Research the Seller
Do your homework. Get reviews on the supplier and check whether he has a registered address, company and legitimate contact details.
2. Make use of a reputable business to business trading platform
Most trading platforms have a method for rating sellers and a section where previous buyers provide feedback. Look for established sellers with a reputable rating and a history of successful transactions from happy buyers.
3. Use a payment method that offers buyer protection
Aim to never wire money directly into a seller’s account unless you have an established trust relationship with the seller. Rather choose a more secure payment option.
4. Take control of the freight and use insurance
A common scam is for the seller to send damaged/substandard goods and blame the damage on the shipper. To protect yourself against this scam arrange the freight yourself and use freight insurance.
More detail on how to protect yourself from fraud is given here.
Related: 4 Ways to Source Quality Products for Imports
If you stick to these steps and properly manage the import and export process, keeping your finger on the pulse, things will go according to plan. A seamless and stress-free trade process is possible, if all necessary arrangements are made to avoid falling into any traps.
How to Accurately Cost an Imported Product
Not all costs are shown in the final quote, so make sure you know what to look for and calculate if missing.
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.
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 on the Trade Logistics calculator’s page. 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.
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.