Import Export & Doing Business in China

A documentary LC is a type of payment in which the importer arranges with his own bank for the issue of a letter of credit, ie payment via the importers’ and exporter’s banks to the exporter, sub-ject to certain conditions. For the exporter to obtain payment, all his shipping and any other documents must comply exactly with the instructions laid down in the letter of credit. Hence, it is important that as an importer you do not lay down onerous conditions that are difficult for the exporter to meet. In addition, you should be willing to agree to any reasonable request for the amendments that may be requested by the exporter, such as changes to final shipping dates.

Almost all countries and banks worldwide subscribe to a set of rules known as uniform customs and practice (UCP). The latest version of these rules, known as UCP 500, came into operation in January 1994. Although UCP 500 is not legally binding, it will be taken into consideration in any dispute, providing a condition is included in the letter of credit stating that it is subject to UCP 500.
Copies of UCP 500 and related papers can be obtained from your bank or from the international Chamber of Commerce (ICC) office in London. A new version of UCP rules is currently being considered and importers should be alert for their introduction. Blank letters of credit can be obtained from stationery suppliers of international trade forms and sometimes from your own bank. The bank will help you complete them but you must be careful to specify the documents and conditions you require to protect yourself against faulty practices such as the delivery of wrong or faulty goods, unreal shipping dates and unsuitable payment requirements. Normally, letters of credit are irrevocable, so once opened they cannot be cancelled; however, amendments can be made through the participating banks by agreement between the exporter and yourself. Provided the exporter’s documents comply with the letter of credit you will have to pay for the goods regardless of their actual quality and condition on arrival.

To open an LC the importer must make available to his bank the money to cover the LC or arrange for the money to be available when required, especially if he is recieveing credit from an exporter. Such credit may be for anything up to 360 days but more usually it is for 30 or 60 days. The cost of this credit is likely to be reflected in the price of the goods.

The exporter may ask for the letter of credit to be confirmed. This means that the bank, normally in the exporter’s country has fulfilled all terms and conditions in the document. The exporter stipulates the confirming bank in his own country but does not usually pay the confirming fees. However, sometimes the exporter will pay them to ensure that he receives payment if the importer is unwilling to pay for confirmation.

In addition to the normal letters of credit described above there are special LC’s such as standby, revolving and transferable LCs. Smaller importers are unlikely to use any of these unless they purchase regularly from one overseas supplier and wish to use a revolving LC to avoid having continuously open a new LC every time a delivery is required. Your bank will explain how you can open a revolving LC. The buyer and seller who are the parties to an LC should ensure that they agree the following points to be included in the LC:

- Description of the goods.
- Price and delivery terms.
- Latest date for shipment.
- Method of payment, place of payment, currency.
- Method of shipment, ie air, road, rail or sea.
- With or without transhipment.
- Part shipment allowed or not allowed.
- Documents required by the buyer, eg certificate of origin, guarantee certificate, invoices, import licences etc.
- Responsibility for bank charges and confirmation fees.

Your bank will expect all these points to be included when you open an LC. Furthermore, you will normally require a pro forma invoice to present to your bank as the main proof of your LC requirements. A pro forma’ on it, and is the same as a normal invoice with the words ‘pro forma’ on it, and is regarded as a sample specimen invoice. The normal invoice is submitted with other documents by the seller to his own bank when he is seeking payment of the LC.

Should the seller receive an LC containing instructions with which he is unable to comply, he should immediately telephone or fax you with the request that you issue instructions to your bank to make an amendment. Provided the bank agrees, it will immediately inform the seller’s bank of the amendment. This most frequently arises when there is a delay in the departure of a ship leading to shipment after the final nominated shipping date. Unless the exporter knows you well, he will not ship until he has your amendment giving a new final shipping date, thus leading to further delays, However, if you are confident in each other, he will ‘ship on trust’ knowing you will issue an amendment and therefore anticipate it to avoid further delays. SITPRO issue a letter of credit checklists and guide which is of considerable help to both importers and exporters.

The advantage of the documentary collection system to the importer is that he does not have to make payment for the goods until he accepts the documents to them from his own bank. The documents will have been sent by the seller via his own bank to the importers bank. However if the importer does not collect the documents he may be faced with penalties.

The importers bank receives al the shipping documents and the invoices which state the methods of payment. The bank will notify the importer when it has all the documents. The importer will then pay a sight or accept a term bill of exchange for payment. Provided this method of payment Is accepter by his bank, the importer will receive the shipping documents which enable him to obtain the goods. There are various terms used for immediate payment in addition to payment at sight, these include cash against documents, documents against payment and for term bills documents against acceptance. A term bill is one that allows credit ie 30, 60 or 120 days or even longer from date of invoice of bill of landing before payment is made by the importers bank from the importers account.
A bill of exchange is passed by the exporter’s bank to the importer’s bank at the time the goods are despatched. A bill of landing, air way-bill or similar document must be included with these documents as evidence as despatch. The exporter should arrange with his freight forwarder or with you where the goods will be held awaiting release for when you present the shipping documents. The documents will show the goods are being delivered to a specific place, eg a customs warehouse, to await release. Problems arise where goods are being shipped very quickly by air or road since the goods may arrive before the shipping documents, and the exporter may have to make special arrangements for your bank to have the documents before the goods arrive. Errors and delays in documentary payment arrangements can be a disadvantage, as well as costly, to all parties involved in the transactions. However, increasingly the electronic transfer of documents is being used to increase speed and efficiency. The simpler Trade Procedures Board (Sitpro) and the Electronic Commerce Association (ECA) are able to give advice and recommendations on electronic systems and their use and acceptability in overseas countries.

The European single market is becoming more harmonized and it is not unreasonable for a reputable importer to expect to pay for his purchases in the same way as he pays for them in the UK, In any case, suppliers in mainland Europe are likely to be willing to offer the same payment terms as UK suppliers so as to be competitive and provided they are confident the importer is trustworthy and reliable.

The open account trading system means that the importer pays the supplier against his invoice. Payment may be cash against invoice0 or within 30 days or for some other credit period. The importer arranges with his bank for the supplier to be pad by the quickest and cheapest route. Clearing banks now offer a number of different payment routes which may vary in speed and cost, and you should decide which route to use after discussions with your bank and supplier. Payment by ordinary cheque may be and expensive and slow way for the supplier and a money transfer system may be in his best interest.

Ok, so there are plenty of Chinese websites offering Iphones, Ipods etc.. for very cheap prices, These products are Made in China. So it would make sense to import the ipods and iphones from China, Wrong.. as soon as they are made they are shipped out by apple, no one gets to see them, its a very secret operation to make sure none of them leak onto the Chinese markets.

Iphones and Ipods are then Imported back into China from the USA, and Yes this is why branded electronics are more expensive to buy in China than USA and Europe.

Read more here about the China Iphone Importers - http://www.ibtimes.com/articles/20080218/apple-iphone-china.htm

A supplier will always want terms of payment which are most favourable for them, such as a payment with the order. An importer would like payment terms that enable him to make payments after has sold and secured payment from his customers, ie he would like credit terms such as payment not due for 30, 60, 90, 180 or 360 days from the date of invoice.

It is even more attractive to the importer if he is able to have goods on consignment, ie he doesn’t pay the suppliers until he has sold the goods to his customers.
Many art galleries take goods from artists and craftsmen only on a consignment sale or return basis. Provided the supplier and the importer agree on the maximum length of time the art gallery can hold the goods on display, eg a work of art, before it is returned to the artists, this is not an unreasonable way of doing business. The artist has his work on display free of charge and gets paid when it is sold or returned to him if it is not sold.
There are many different forms of payment in the international trade and anyone intending to become an importer should make themselves familiar with the main types and the terms used to describe them. All the major clearing banks provide free booklets on terms of payment and a copy should be obtained from your local clearing branch or the international trade section of the bank. In any case, contract should be established with the international section of staff as sooner or later it will be necessary to discuss with them the various possible forms of payment and any currency exchange problems that may arise and how to manage them.

The growing use of the internet to source goods and services means that reasonably assured methods of payment such as credit card payments will be required by the suppliers for purchases via the internet. Buyers should ensure they can recover their payment in the event of non-delivery or delivery of incorrect or damaged goods.

The importer, ie the buyer, needs to ensure that he receives his goods on time and to his requirements; the supplier wants to make sure he receives payment on time. Each party wishes to know that the other is reliable. Some suppliers will only supply goods if they receive part payment with the order and the remaining payment when the goods are ready for dispatch. This particularly applies to very small businesses in the craft and design field but many other firms will refuse to give credit to a buyer on a initial order. In any case, the supplier will wish to check the buyer’s credit worthiness before granting credit. The Importer will wish to check that he is dealing with a reliable and trustworthy supplier before placing orders. The importer and the supplier need to build a good relationship if both parties are to benefit from the business.
The Importer should always be on the alert for a supplier running into production or financial difficulties. This could be indicated by slow deliveries, a deterioration in quality or by a change in normal business relations.

In developed countries there are many organizations that will, for a fee, provide a credit rating and other financial information on a company. Dun & Bradstreet are one of the best know multinational companies in this field. They offer business information and other services. CCN Group is another UK firm who supply similar information and can be contacted direct or accessed via the Europe Network Ltd database. Another company providing such information is Graydon UK Ltd, Who covers companies in over 160 countries. Your clearing bank can also often provide a status report on a possible supplier. This is known as a bank reference and gives information on the creditability of a possible supplier. Should you wish to investigate the banks credit assessment services in more detail you will find most of these organizations with stands at the Credit Management Exhibition, usually held in April in London.

The first meeting with a potential supplier is likely to be and exploratory meeting. If you act simply as a buyer, your negotiations will be much easier than if you try to have yourself appointed as his official agent or distributor. In a simple buying and selling situation, you will be negotiating such matters as prices, payment terms, delivery terms product specifications, packaging and labelling. If you are seeking agency or distributor agreement, you will also need to discuss the clauses the supplier wishes to include in the agreement and those you wish to have inserted. You will also want to visit your suppliers premises and he yours before any agreement is signed.

Subsequent meetings with the supplier will depend on how important you are to each other. You will be seeking information from one another on the progress of existing business and any new developments. The supplier will want to know how you are developing the sales of his product, how it compares with competition and weather there is any customer resistance to the product, eg for price or quality reasons. You may want to discuss such meetings it is advisable to draw up a list of items you wish to discuss, possibly sending a meeting agenda to your supplier beforehand. Naturally, you should take any relevant documents to the meeting plus any samples of packages, competitive products, etc that you may wish to discuss. The better both parties prepare for such meetings the more likely they will be successful.

Every time you visit an overseas market, plan your trip in advance, making sure you have confirmed appointments with all your existing suppliers and potential suppliers that you wish to meet. Since you are the buyer, and particularly if you are an important buyer, the supplier will probably assist you with your visit arrangements. He may recommend where to stay, make a hotel booking for you and arrange for a car to take you to his office or works. If you visit a market as part of a trade mission, many of these arrangements will be made by the visit organizers.

Travel within Western Europe is relatively easy; especially if you equip yourself with the information on the country and town you are visiting before departure. Much of this information can be obtained from the country’s tourist office in London. Even on arrival you should be able to obtain a town map and other information from the local tourist office. If you are going to countries further afield especially developing countries, you will not find the same information so readily available, so make sure you use a reliable travel agent with representatives in the countries you propose to visit. Things do go wrong from time to time on overseas business trips and the travel company’s representatives and the supplier you are visiting should be willing to help you. Make sure you have addresses and telephone numbers of people to contact in an emergency. The British Embassy will also advise and possibly help if you are faced with a really serious situation.

Your travel agent should be able to advise you about the documents, eg visas, that you may require. They should also warn you of the health risks and which inoculations are compulsory and which are desirable. The British Airways Travel Clinics and a number of other specialist organizations will give you good advise on what protection you need and what medication to take with you. Your doctor should have leaflets explaining what protection is needed for each country. He can also arrange inoculations, anti-malaria tablets and any other medication that you may require. Keeping fit is vital if you intend to have a successful visit.
A good travel agent will be able to advise you about clothing requirements, eg for very hot or very could countries, and travel to and from your arrival point. Unfortunately, in some developing counties unless your travel agents representative meets you at the hotel, you might find the reception will claim they have no booking you. Hotels get overbooked and are taket over at short notice for important visiting parties of dignitaries and you need the help of the travel agent’s representative in such situations. In developed countries it is not usually necessary to have this assistance but in some developing countries it is essential.
It is vital to have traveller’s cheques for visit expenses and cash in local currency, assuming it is freely exchangeable on the world’s currency markets. Clearly, Western European countries, North America, Japan and other developed countries are unlikely to present and real problems. In some developing countries with exchange controls you need to know about exchange rates before you arrive and any problems you are likely to have changing traveller’s cheques and paying hotel bills in hard currency. It may not be easy to change travellers cheques at any hour of the day or night and you need to change money at your point of arrival. Since you are intending to purchase goods or services or at least enter into business arrangements during your visit you should know the sterling exchange rate and the structure of the local currency before you arrive. This knowledge will also enable you to make price comparisons with the goods and services being sold locally.

It is desirable to visit potential suppliers before finally placing orders with them, especially as you may wish to negotiate better prices and delivery terms. Visits to potential suppliers in Western Europe present no real problems but to go further afield requires more time and money. In general, importers placing small orders do not visit overseas suppliers unless they have other reasons for visiting their country. However, if you entering into a large contract or intending to sign an agency or distribution agreement for the UK then, if at all possible, the supplier’s premises, his works and offices should be visited. This will enable you to assess the business and meet the people with whom you will be in regular contact.