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Import

proce

dure

and

finance

ANCY JOHN2nd Sem, mcomNo- 2

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Import Procedure

• Preliminaries• Enquiring and placing the indent• Obtaining the Foreign Exchange• Arranging for Payment• Payment of customs duties and

taking the delivery of goods.

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1) Preliminaries :

The importing firm or an individual has to obtain a license and Importer-Exporter Code (IEC) number from the Controller of Exports and Imports. The import licenses are usually issued for a period of one year at a time.

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2) Enquiring and placing the indent : After

obtaining the import license, the importer has to enquire about the goods he would like to import with various exporters. Then he would identify an exporter and request him to sent the invoice.

After accepting the invoice, the importer sends the indent directly to the exporters. Otherwise, he may sent the indent through specialized intermediaries called Indent houses.

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Indent may be open or closed.• Open indent does not specify the

price and other details of the goods and leaves them to the discretion of the exporter.

• Closed indent specifies the brand, price, number, packing, shipping mode, insurance, etc.

The indent houses help the importers in negotiating price, discounts, etc., as they maintain close links with the foreign firms.

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3) Obtaining Foreign Exchange:

After sending the indent, the importer has to procure the required foreign exchange from the Exchange Control Department of the Reserve Bank of India. The importer has to produce the import license and the prescribed forms for securing foreign exchange needed for the payment.

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4) Arranging for payment: The importer

has to make necessary arrangements for paying for import after obtaining the foreign exchange. The following documents are to be submitted to the exporter-

I. Letter of credit : Letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensure the payment will be made as long as the services are performed.

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II. Documentary Bill: The importer may request the exporter to forward the documentary bill through his banker, which would be delivered to him either against acceptance of the Bill of Exchange or against its payment. Thus, the documents may be received either through D/A(documents against acceptance of Bill of Exchange) or D/P (documents against payment).

III. Bill of Lading: Bill of Lading is an important instrument in financing international trade. It is a document/receipt issued by a shipping company or its agent acknowledging the receipt of goods mentioned in the bill for shipment on board of the vessel.

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IV. Bill of Exchange/Draft: Bill of Exchange or draft is an order written by an exporter instructing an importer or his/her agent to pay a specified amount of money at a specified time.

5) Payment of customs duty and taking delivery of goods:

The importer has to pay the customs duties. The customs duty may be based on the weight and size of the goods or based on the value of the goods. The customs dut may be paid under the “Permanent Deposit System”

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Import Finance

• Letter of credit.• Documentary Collection• Cash-in-Advance (Pre-payment).• Open Account.• Bill of Lading.

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Documentary Collections• Collection terms offer an important

bank payment mechanism that can serve the needs of both the exporter and importer. Under this arrangement, the sale transaction is settled by the bank through an exchange of documents, thus enabling simultaneous payment and transfer of title.

• The importer is not obliged to pay for the goods prior to shipment and the exporter retains title to the goods until the importer either pays for the value of the draft upon presentation(sight draft) or accept to pay at later date and time(term draft). The Prinipal obligations of the parties to a documentary collections are arranged under the guidelines of “ uniform rules for coolections (URC) drafted by the Paris based International Chamber of Commerce.

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Cash-in-Advance

• Under these terms of purchase, the importer must sent payment to the supplier prior to shipment of goods. The importer must trust that the supplier will ship the product on time and that the goods will be as advertised. Basically, Cash-in-advance terms place all the risk with the importer/buyer. An importer may find his seller requiring prepayment in the following circumstances:

The importer has not been long established.

The importer’s credit status is doubtful, unsatisfactory or the country political and economic risks are very high.

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There are advantages and disadvantages with cash-in-advance terms. This method of payment involves direct buyer/seller contact without commercial bank involvement and is there for inexpensive.

However, the buyer faces a very high degree of payment risk . In addition there is a possibility that an unscrupulous Seller may never deliver the goods even though the buyer has made full prepayment. Although prepayment terms eliminates virtually all risk to the seller these terms can place the seller at a competitive disadvantage.

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Open Account

• Unsecured Open Account terms allow the importer to make payment at some specific date in the future and without the buyer issuing any negotiable instrument evidencing his legal commitment to pay at the appointed time.

• These terms are most common when the importer/buyer has a strong credit history and is well-known to the seller.

• This mechanism offers the seller no protection in case of non-payment. However, an exporter can structure his open account sale transaction to minimize the risk of non-payment.

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• There are many advantages and disadvantages of open account terms. Under an Open Account payment method, title to the goods usually passes from the seller to the buyer prior to the payment and subject the Seller to risk of default by the buyer.

• Furthermore, there may be a time delay in payment, depending on how quickly documents are exchanged between seller and buyer 19

Bill of Lading

• Bill of Lading is an important instrument in financing international trade. It is a document issued by the shipping company or its agent acknowledging the receipt of goods mentioned in the bill for shipment on board of the vessel.

• In this method, the importers bank receive all the documents from the exporters bank. Then the importers bank provide the document to the importer. After obtaining all the documents the importer will wait for the arrival of the ship. On arrival of the ship, the master of the ship gives a report called ‘Ships Report’ specifying the details of the ship and cargo to the customs authority.

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• Then the goods are delivered to the customs authorities. The importer obtains the Endorsement for Delivery on the back of Bill of Lading from the shipping company by paying the freight, if needed. Then the importer presents ‘Port Trust Due Receipts’ (two copies) and Bill of Entry to the Port trust office to obtain clearance regarding dock dues. 21

Letter of Credit

• Before exporting goods the exporter has to ensure the credit worthiness of the buyer abroad. For this purpose, he will request the importer to provide him with a letter of credit from a bank.

• A Letter of Credit is a document which is issued by a bank at the request of the importer in favour of the exporter. The Letter of Credit authorizes the bank in the exporting country to accept Bill of Exchange on the behalf of the importer. It states the period within which the bill must be presented and the amount for which the letter of credit is opened.

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Parties to the Letter of Credit

• Applicant• Issuing Bank(opening bank)• Beneficiary Bank.• Advising Bank.• Confirming Bank.• Nominated Bank.• Reimbursing Bank.

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Types of Letter of Credit

1. Revocable letter of credit2. Irrevocable letter of credit3. Payment credit 4. Deferred payment credit5. Acceptance credit6. Negotiation credit7. Confirmed letter of credit8. Unconfirmed letter of credit

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9. Sight credit10.Usance credit11.Revolving credit12.Instalment credit13.Deferred credit14.Transit credit15.Reimbursement credit16.Transferable credit17.Back to back credit

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