Importing goods is essential to the survival and growth for many of the 250,000 UK businesses currently buying from overseas suppliers. If done right, importing can give your business a competitive edge over your rivals. The thing is, understanding the many ins and outs can be tricky, particularly when various regulations, requirements and processes, which don't apply when purchasing domestically, come into play.
As an importer, it's essential to understand:
- Cash flow
- Due diligence
- Import duty
- Overseas payments
1. Cash flow
It's essential you forecast cash flow when importing, so you have finances to hand for settling invoices. You may typically find the duration between paying your suppliers, selling the items and receiving income from your customers dramatically increases. You should plot out a typical timeline, which enables you to plan cash that's outlaid versus when you're expecting a return. By doing so, you can begin planning when additional stock is required and whether or not you have the cash to fund it. It would be our suggestion to complete this task before placing your first overseas order as you may wish to negotiate delivery or build times that suit your needs.
2. Due diligence
Striking up a good relationship with the right supplier is essential to successful importing. Make sure you avoid getting caught up with an unreliable and troublesome supplier as it could significantly affect your business long-term. If you're looking to work with a new supplier, follow these steps to help eradicate any issues or uncertainties you may have:Check domain names and registration
Do they have a website and do their addresses correspond as how you'd expect?Give the supplier a phone call
This goes without say when dealing with a new supplier; you're putting a huge amount of trust into somebody you'd possibly never met. Pick up the phone and get a feel for who they really are - you'll get a sense of whether or not they appear genuine.Ask for trade testimonials
We often receive feedback in the form of testimonials or via Trustpilot reviews. Does your supplier have something similar? If not publicly available, ask your prospected supplier for previous trade references and see what their customers think about them.Speak to previous customers direct
Whilst this might be a little tricky, if the opportunity arises, gauge direct feedback from previous clients. The likelihood is if you're gathering contact details from the supplier, then they'll only pass on those who're likely to speak highly of them. If you able to collect your own contacts, you'll get an honest opinion of the supplier.Request samples
Before committing to large orders, it's important to obtain samples of any product from your supplier. These samples will help assess the overall quality available.Meet your supplier
This is a no-brainer. Even if your supplier isn't local, you should visit their operations. There's no comparison to meeting somebody face to face; look around their warehouse or office, meet their staff and getting a feel for who they really are.
3. Customs duty
The origin of your goods will dictate whether or not duty is paid. Whilst we're about a year away from leaving the EU, at present, the rules for importing remain the same.
Import duty is paid on goods imported into the UK from outside the EU. Goods brought from within the EU aren't typically liable to duty, so will therefore be known as acquisitions and not imports.Inside the EU
Goods that are imported from within the EU are subject to favourable conditions. However, you must provide proof that goods originated from an EU member state and haven't passed through countries outside the EU. If goods originated from outside the EU but are travelling across EU borders towards the UK, duty must be paid when the goods first entered the EU.
Alternatively, if your goods originate from within the EU, then they aren't subject to duty, which is also known as 'free circulation'. You must however, have a commodity code to categorise the types of goods you're moving. The government provides a tool to help check commodity codes.Outside the EU
Before you begin importing from outside the EU, it's essential to register your business for an EORI number. It is issued by the UK government and is needed to ensure your goods clear customs - it can be completed online.
As with importing from within the EU, all goods must show a commodity code as this will help define your product in customs. Depending on what you're importing, you might be entitled to duty relief on such items as; scientific equipment, mobiles and books. However, if customs duty is applicable, this could range from 1% to 80% to the value of the goods, although it's generally 2% to 10%.
Due to the complexity of importing from outside the EU, many businesses partner with an agent, such as a freight forwarder. The agent would typically declare on your business's behalf and help eradicate unnecessary mistakes, fees and legal issues.
It's worth noting that any payable VAT will need settling in Pound Sterling as this is paid direct to the UK government. Exchange rates are set and amended on a monthly basis by the HMRC.Inside the EU
If you're purchasing goods from within the EU, they are treated in a similar way to those purchased in the UK. The only difference is when goods are purchased from other VAT registered EU business, they don't charge VAT on their invoices. This means you are required to provide all EU suppliers with a VAT registration number. Depending on the service or product you receive, the VAT will be credited back. The UK government website has a breakdown on VAT.Outside the EU
VAT is payable on any goods imported from outside the EU - it excludes imported services. Firstly, you must calculate the cost of the goods, including; duties, delivery, insurance and any additional fees. Once calculated, you pay 20% of this cost to the HMRC. There are certain exclusions and there's a calculator on the HMRC site.
5. Overseas payments
Importing goods from overseas will require the supplier's invoice to be settled in a foreign currency from a bank or broker, which if you're not careful, can include hidden costs. Unfortunately, due to the unregulated nature of FX, many banks and brokers hide their fees despite claims there are 'no fees', which can often impact your profits. Finding a reputable overseas payment provider can make a huge difference to your bottom line and avoiding the banks' excessive fees is certainly advised, too.
Once you've found yourself a trusted provided, it's worth understanding how currency fluctuations can alter the cost when settling an invoice in a foreign currency. Consider the Brexit announcement in June 2016 and the impact currency fluctuations had on a UK business's profits and savings. GBP/EUR rate fell significantly overnight resulting in many businesses having to rethink their immediate currency strategy as the pound weakened against the euro.Example scenario - identifying risk
|DATE||GOODS IMPORT COST||MID-MARKET RATE||COST TO SETTLE SUPPLIER||DIFFERENCE|
Please note the above excludes any additional margin and/or fees and is intended as an example only.
The above example highlights the movement of the mid-market rate between GBP/EUR and the financial costs you'd endure settling an invoice with an overseas supplier. By simply booking the trade on 23rd June would have resulted in £3,305 better off than had the trade been booked 24 hours later. This particular movement was triggered by an unexpected political announcement and confidence was subsequently lost in the pound, so understanding the impact of fluctuations no matter how big or small is vital to your company's bottom-line.
WhitesPay has developed this guide to help you manage currency payments, not least during times of volatility.
Step 1 - understanding your currency exposure
- How many transactions a year are related to imports?
- What currencies do you transact in?
- How often do you make foreign payments?
- What exchange rate do you price your overseas goods at?
- Would a large rate movement damage profitability?
- Are the timing of your payments within your control?
Step 2 - use WhitesPay
WhitesPay have a number of services available to manage foreign exchange exposure.
Spot trade: You simply buy or sell a foreign currency on the day. Whether you are booking over the phone or online, we will quote you an exchange rate and cost of settlement. This is our most-straightforward and efficient product - you know exactly how much sterling is required to settle and the amount of currency you'll receive. Whilst this service does not mitigate fluctuations day-to-day or even during the day itself, our experienced and knowledgeable traders are here to guide you to reduce this risk.
Forwards: A forward is a contract to purchase an amount of foreign currency at an agreed rate, either in parts throughout or in full at the end of the lifetime of the agreement. As there are no guarantees in how the market will move, forward planning allows you to reduce the risk and lock-in an agreed rate. The downside to this approach is that the exchange rate moves to a better rate than the fixed exchange rate you've already agreed.
Fluctuations in the market can profoundly affect any business and WhitesPay understands the need to manage these. By simply following the above approach or by contacting us direct to discuss your currency exposure as outlined in Step 1 we hope to develop a currency strategy that works for your business.
Whilst the above 5 steps should help provide a solid guide for importing from both within and out the EU, feel free to contact us direct if you wish to discuss any of the outlined points. Alternatively, the UK Government has a comprehensive guide worth checking