The major concern of international trade is related to import and export of goods and services. Export orders must conform to the terms of a contract between buyer and seller and in most case, the contract is sent from the foreign buyer. Before the confirmation of a contract, it must be scrutinized with the product details and their specifications, terms of payment, price, delivery schedule, etc.
The immediate task of an exporter is to acknowledge the export order which is different from its acceptance. Then s/he should proceed to examine the export order carefully concerning the item, product specification, pre-shipment inspection, payment conditions, special packaging, labeling and marking requirements as well as shipment and delivery date, marine insurance, documentation etc. If the exporter is satisfied with these aspects, a formal confirmation of the export order is sent from the buyer’s end and exporter should proceed to enter into a formal contract with the overseas buyer. The aspects relating to the process of an export order are discussed as under:
Before starting the RMG export business, a manufacturer cum exporter has to collect some documents which will widely use in executing export/import order. They are;
- Trade License
- TIN License
- VAT License
- Memorandum of Association and Articles of Association /Partnership Agreement
- Certificate of Incorporation
- Rent Agreement or Ownership proof
- Holding Tax payment receipt
- NoC declaration from the Local Authority
- Bank Account and Solvency Certificate
- Fire Service License
- Environment Clearance Certificate
- Membership Certificate from incumbent Association/Chamber.
- Group insurance for the workers employed in the factory
- Approved Building layout plan and structural design from concerned govt. authority
- Export Registration Certificate (ERC)/ Import Registration Certificate (IRC)
Process flowchart of Exporting product
Export order is a document from any specific foreign buyer to purchase items from the exporter. It would indicate the exporter’s Pro-forma invoice/quotation number and issuing date, including item, quantity, price, delivery date, shipping marks, insurance, payment terms etc. Before acceptance, the export orders should be scrutinized in all aspects. The following documents are commonly used in exporting.
- Pro-Forma Invoice
- Bill of lading
- Commercial invoice
- Certificate of origin
- Inspection certification
- Dock receipt and warehouse receipt
- Destination control statement
- Insurance certificate
- Export license (ERC)
- Export packing list
The process of exporting product starts after communicating with buyers. In this case, we will discuss the process covering the RMG product. In general, an exporter exports his product following these ten steps.
Step -1: Communicating with Buyer
The starting point for any Export Transaction is an inquiry. An inquiry for the product should, inter alia, specify the following details or provide the following data.
- Size details of products – Std. or oversize or undersize, Drawing – if available, Sample – if possible, Quantity required, Delivery schedule.
- Mode of Dispatch – Sea, air or Sea/air. Mode of Packing.
- Price requirement on FOB or C & F or CIF basis
- Terms of Payment which would be acceptable to both end of Buyer and exporter; buyer or exporter can propose to open Letter of Credit or any specific valid transaction process which is to be compiled from both ends.
- Any requirement of Pre-shipment inspection if needed and then specify agency.
- Any Certificate of Origin required – If so, from which agency.
- Or any other requirements.
Step -2: Pro-forma Invoice (P I) Generation
In the second step of exporting, Manufacturer Exporter or Merchant Exporter will study the inquiry in details and forward the related query to the incumbent persons to gather the answers. After that, he will provide a Pro forma Invoice to the Buyer as per the demand of buyers.
A sample of pro forma invoice has been attached in annexed for your better perception.
Step -3: Order placement and Acceptance
If the offer is acceptable to the Buyer in terms of price, delivery and payment, the Buyer will then place an order to the Exporter, giving as much data as possible in terms of specifications, quantity etc.
Under international business transaction mode, both exporter and importer define their roles and responsibilities to each other with sales contracts. A sale contract is a legal binding document for both parties. In practice, a small volume of international sales is handled by Pro-forma invoices whereas medium size sales are covered under sale contracts. Big volume of sale contracts should be written by lawyers. In addition to the volume of the trade transaction, the duration of the business is another point of consideration when deciding to use a Pro-forma invoice or sale contract. If the business transaction will be completed over a while such as 1 year or more than that period, sale contracts should be preferred instead of Pro-forma invoices.
At this stage, the exporter requests the importer to open an irrevocable letter of credit (L/C) in favor of an exporter in a nominated scheduled bank.
After getting the L/C confirmation, Exporter immediately acknowledges receipt of the order, giving a schedule for the delivery committed.
Step – 4: Goods readiness & documentation
Once the buyer accepts the offer and places an order, the marketing merchandiser schedules a production plan and also trace the status of production. In the meantime, approving sample from the buyer and also maintaining the quality is mandatory. After that, when goods are ready and duly packed in Export worthy cases/cartons (depending upon the mode of dispatch), the commercial Invoice is prepared by the Exporter. A sample of the commercial invoice has been attached in annexed 2 of this book.
If the number of packages is more than one, a packing list is a must.
Step – 5: Documents for C & F agent
Exporting any products through the valid channels, exporters may need to handle a large number of documents depending on the requirements of both exporter’s government and the government of the importing country.
In such a situation, most of the exporters seriously consider having the clearing and forwarding (C&F) agent to handle the formidable amount of documentation that exporting requires since C&F agents are specialists in this process. The C&F agent should be a reputed firm with experience in handling export/import cargo. If the goods are to be exported by sea, the C&F agent should have branches in the major ports like Chattogram and Mongla.
Thus, the exporter will hand over the following documents to the C&F agent for forwarding the export goods to shipping agent through customs. Necessary papers related to C&F agents and exporter are;
- Commercial Invoice and Packing List.
- Export Manifesto.
- Copy of Letter of Credit
- Packing List.
- Certificate of Origin and Export Registration Certificate
- Under the claim of Drawback of duty.
- Export Form
- Any other declarations or documents as required by Customs.
- Bill of Export will be generated by the Customs based on the above documents.
Step – 6: Customs Clearance
C&F agent presents the required documents to the customs for letting the consignment to export. After assessment of the shipping bill and examination of the cargo by Customs (where required), the export consignments are permitted by Customs for ultimate Export. This is what the concerned Customs officials call the ‘LET EXPORT’ endorsement on the shipping bill.
Step – 7: Document Forwarding
After completing the shipment formalities, the C&F Agents are expected to forward to the Exporter the following documents:
- Customs signed Export Invoice & Packing List.
- Duplicate of Form Export Manifesto.
- Exchange control copy of the Shipping Bill / Bill of Export.
- Bill of Lading or Airway bill, as the case may be.
Step – 8: Bills negotiation
The Exporter will have to negotiate the relevant export bill through authorized dealers of Central Bank, viz., Banks with these authenticated shipping documents as payments terms mentioned in the L/C.
Broadly, payment terms can be:
- DP Terms (Documents Against Payment)
- DA Terms (Documents Against Acceptance)
- Letter of Credit, payable at sight or payable at… days.
Under the Generalized System of Preference (GSP), imports from developing countries enjoy certain duty concessions, for which the exporters in the developing countries are expected to furnish the GSP Certificate of Origin to the Bankers, along with other shipping documents.
Step – 9: Bank to bank documents forwarding
The negotiating Bank will scrutinize the shipping documents and forward those to the importer’s bank. After receiving these documents, importers bank will hand over these documents to the importers as per negotiation for clearing the consignment.
It is expected of such authorized dealers of Central Bank to ensure receipt of export proceeds.
Step – 10: Receipt of Bank certificate
Authorized dealers will issue Bank Certificates to the exporter, once the payment is received and only with the issuance of the Bank Certificate, the export transaction becomes complete.
It is mandatory on the part of the Exporters to negotiate the shipping documents only through authorized dealers of Central Bank, as only through such a system Central Bank can ensure receipt of export proceeds for goods shipped out of this country.
At last, the exporter should give thanking remarks for doing business with him and also sustain the business relationship.
Import trade refers to the purchase of goods from a foreign country. The procedure for import trade differs from country to country depending upon the import policy, statutory requirements and customs policies of different countries. In almost all countries of the world import trade is controlled by the government. The objectives of these controls are a proper use of foreign exchange restrictions, protection of indigenous industries etc. The imports of goods have to follow a procedure. This procedure involves several steps. But before going to conduct import procedure, one should keep in mind some documents processing.
Documents for IRC
An importer having Import Registration Certificate (IRC) can Import any permissible item without any value and quantity restrictions and without obtaining any permission from any authority. Before importing any product, importers should have permission which is known as Import Registration Certificate (IRC). One has to submit the following documents with the application form for getting an import registration certificate (IRC).
- Trade License
- Membership Certificate from recognized Chamber/Trade Association;
- Tax Identification Number
- Bank solvency Certificate;
- Memorandum and Articles of Association and Certificate of Incorporation (in case of Limited Company).
- Fee for IRC
Procedure to open an L/C (Letter of Credit)
Among the different paying method, letter of credit (L/C) is one of the safe methods. Nowadays, an importer is requested by an exporter to open an L/C in favor of the exporter for importing any goods. Thus, importers have to submit the following documents to the lien bank to open an L/C.
- Letter of Credit application form
- Letter of Credit Authorization Form
- IMP form
- Contract form
- Charge Document
- Guarantee Form
- Import Registration Certificate (IRC)
- Membership Certificate
- Insurance Cover Note and Receipt of Premium
- Copy of Indent /Pro Forma Invoice
- Tax Identification Number Certificate
- Trade License
- VAT Certificate
Open up Back to Back L/C
Back to Back L/C is needed to open up when exporters who are out of the capital for sourcing raw materials to manufacture final export products. Through this Back to Back L/C, Exporters are enabled to get finance to purchase raw materials, manufacture, process and packing items to produce final export products.
Following documents are needed to open a Back to Back L/C
- Original Copy of Letter of Credit (Master L/C)
- A valid license of Bonded Warehouse
- Permit certificate from the Department of Textile
- Certificate of Incorporation in case of Limited Company.
- Letter of a Credit application
- Import Permission (IMP form)
- PI form/ Indent form
- Insurance Cover note with money receipt.
- Filled and signed L/C form
- CIB Report
- Trade License
- Valid IRC and ERC
- Member Certificate of Related Association
Steps involve in importing product
(i) Trade Inquiry
The first stage in an import transaction, like any other transaction of purchase and sale, relates to making trade inquiries. An inquiry is a written request from the intending buyer or his agent for information regarding the price and the terms on which the exporter will be able to supply goods.
The importer should mention in the inquiry all the details, such as; the goods required, their description, catalog number or grade, size, weight and the quantity required. Similarly, the time and method of delivery, method of packing, terms and conditions regarding payment should also be indicated.
In reply to this inquiry, the importer will receive a quotation from the exporter which is generally known as Pro-forma Invoice (PI). The quotation contains the details as to the goods available, their quality etc., the price at which the goods will be supplied and the terms and conditions of the sale.
(ii) Sourcing Finance to open import L/C
After obtaining the license (or quota, in case of an established importer), the importer has to arrange for obtaining necessary foreign exchange since the importer has to make payment for the imports in the currency of the exporting country.
The foreign exchange reserves in many countries are controlled by the Government and are released through its central bank. For this, the importer has to submit an application in the prescribed form along-with the import license to any exchange bank as per the provisions of the Foreign Exchange Control Act and foreign exchange guideline.
The importer gets the necessary foreign exchange from the exchange bank concerned. It is to be noted that, whereas import license is issued for a particular period, the exchange is released only for a specific transaction.
(iii) Placing the Indent or Order through dispatching L/C:
After the initial formalities are over and the importer has obtained the necessary amount of foreign exchange, the next step in the import of goods is that of placing the order. This order is known as Indent. An indent is an order placed by an importer with an exporter for the supply of certain goods.
It contains the instructions from the importer as to the quantity and quality of goods required, method of forwarding them, nature of packing, mode of settling payment and the price etc. An indent is usually prepared in duplicate or triplicate.
Generally, foreign traders are not acquainted with each other and so the exporter before shipping the goods wants to be sure about the creditworthiness of the importer. The exporter wants to be sure that there is no risk of non-payment. Usually, for this purpose, he asks the importers to send a letter of credit to him.
A letter of credit, popularly known as ‘L/C or ‘L.C is an undertaking by its issuer (usually importer’s bank) that the bills of exchange drawn by the foreign dealer, on the importer will be honored on presentation up to a specified amount.
(iv) Obtaining Necessary Documents:
After dispatching a letter of credit, the importer has not to do much. On receipt of the letter of credit, the exporter arranges for the shipment of goods and sends Advice Note to the importer immediately after the shipment of goods. An Advice Note is a document sent to a purchaser of goods to inform him that goods have been dispatched. It may also indicate the probable date on which the ship is expected to reach the port of destination.
The exporter then draws a bill of exchange on the importer for the invoice value of goods. The shipping documents such as the bill of lading, invoice, insurance policy, certificate of origin, consumer invoice etc., are also attached to the bill of exchange. Such a bill of exchange with all these attached documents is called Documentary Bill. Documentary bill of exchange is forwarded to the importer through a foreign exchange bank which has a branch or an agent in the importer’s country for collecting the payment of the bill.
There are two types of documentary bills:
(a) D/P, D.P. (or Documents against payment) bills.
(b) D/A, D.A. (or Document against acceptance) bills.
If the bill of exchange is a D/P bill, then the documents of title of goods are delivered to the drawee (i.e., importer) only on the payment of the bill in full. D/P bill may be sight bill or usance bill. In case of sight bill, the payment has to be made immediately on the presentation of the bill. But usually, a grace period of 24 hours is granted.
Usance bill is to be paid within a particular period after sight. If the bill is a D/A bill, then the documents of title of goods are released to the drawee on his acceptance of the bill and it is retained by the banker till the date of maturity. Usually, 30 to 90 days are provided for the payment of the bill.
(vii) Customs Formalities and Clearing of Goods:
After receiving the documents of title of the goods, the importer’s only concern is to take delivery of the goods, when the ship arrives at the port and to bring them to his place of business. The importer has to comply with many formalities for taking delivery of goods. Unless the following mentioned formalities are complied with, the goods lie in the custody of the Custom House.
(a) To obtain an endorsement for delivery or delivery order:
When the ship carrying the goods arrives at the port, the importer, first of all, has to obtain the endorsement on the back of the bill of lading by the shipping company. Sometimes the shipping company, instead of endorsing the bill in his favor, issues a delivery order to him. This endorsement of the delivery order will entitle the importer to take the delivery of the goods.
The shipping company makes this endorsement or issues the delivery order only after the payment of freight. If the exporter has not paid the freight, i.e., when the bill of lading, is marked freight forward, the importer has to pay the freight to get a green signal for the delivery of goods.
(b) To pay Dock dues and obtain Port Trust Dues Receipts:
The importer has to submit two copies of a form known as ‘Application to import’ duly filled into the ‘Lading and Shipping Dues Office’. This office levies a charge on all imported goods for services rendered by the dock authorities in connection with the lading of goods. After paying the necessary charges, the importer receives back one copy of the application to import as a receipt ‘Port Trust Dues Receipt’.
(c) Bill of Entry:
The importer will then fill in a form called Bill of Entry. This is a form supplied by the customs office and is to be filled in triplicate. The bill of the entry contains the particulars regarding the name and address of the importer, the name of the ship, packages number, marks, quantity, value, description of goods, the name of the country where from goods have been imported and custom duty payable.
(d) Bill of Sight:
If the importer is not in a position to supply the detailed particulars of goods because of the insufficiency of information supplied to him by the exporter, he has to prepare a statement called a bill of sight. The bill of sight contains only the information possessed by the importer along-with a remark that he is not in a position to give complete information about the goods. The bill of sight enables him to open the package and examine the goods in the presence of a customs officer to complete the bill of entry.
(e) To pay Customs or Import Duty:
There are three types of imported goods:
- Non-dutiable or free goods,
- Goods which are to be sold within the country or which are for home consumption, and
- Re-exportable goods i.e. goods meant for re-export. If the goods are duty-free, no import duty is to be paid at the customs office.
Custom authorities will permit the delivery of such goods after the usual examination of the goods. But if the goods are liable for duty, the importer has to pay custom or import duty which may be based on weight or measurement of goods, called Specific Duty or on the value of imported goods Ad-valorem Duty.
There are three types of import duties. On some goods, quite low duties are levied and they are called revenue duties. On some others, quite high duties are charged to give protection to home industries against foreign competition. While goods imported from certain nations are given preferential treatment for the levy of import duties and in their case full protective duties are not charged.
(f) Bonded and Duty paid Warehouses:
The port and customs authorities maintain two types of warehouses-Bonded and Duty paid. These warehouses are situated near the dock and are very useful to importers who do not have godown of their own to store the imported goods or who, for business reasons, do not wish to carry them to their godowns.
The goods on which the duty has already been paid by the importer can be kept in the duty paid warehouses for which a receipt called ‘warehouse receipt’ is issued to him. This receipt is a document of title and is transferable. The bonded warehouses are meant for goods on which duty has been paid by the importer. If the importer cannot pay the duty, he may keep the goods in Bonded warehouses for which he has issued a receipt, called ‘Dock Warrant’. Dock Warrant, also like warehouses receipt, is a document of title and is transferable.
The bonded warehouses are used by the importer when:
- He has no godown of his own.
- He cannot pay the duty immediately.
- He wants to re-export the goods and thereby does not want to pay the duty.
- He wants to pay the duty in instalments.
A nominal rent is charged for the use of these warehouses. One special advantage of these warehouses is that the importer can sell the goods and transfer the title of goods merely by endorsing warehouse receipt or dock-warrant. This will save the importer from the trouble and expenses of carrying the goods from the warehouses to his godown.
(g) Appointment of clearing Agents:
By now we understand that the importer has to fulfill many legal formalities before he can take delivery of goods. The importer may take the delivery of the goods himself at the port. But it involves much of time, expenses and difficulties. Thus, to save himself from botheration of complying with all the complicated formalities, the importer may appoint clearing agents for taking the delivery of the goods for him. Clearing agents are the specialized persons engaged in the work of performing various formalities required for taking the delivery of goods on behalf of others. They charge some remuneration on performing these valuable services.
(h) Making the Payment:
The mode and time of making payments are determined according to the terms and conditions as agreed to earlier between the importer and the exporter. In case of a D/P bill, the documents of title are released to the importer only on the payment of the bill in full. If the bill is a D/A bill, the documents of title of the goods are released to the importer on his acceptance of the bill. The bill is retained by the banker till the date of maturity. Usually, 30 to 90 days are allowed to the importer for making the payment of such bills.
(i) Closing the Transactions:
The last step in the import trade procedure is closing the transaction. If the goods are to the satisfaction of the importer, the transaction is closed. But if he is not satisfied with the quality of goods or if there is any shortage, he will write to the exporter and settle the matter. In case the goods have been damaged in transit, he will claim compensation from the insurance company. The insurance company will pay him the compensation under advice to the exporter.