How to start an export import

firm in India?
I hope, this article about setting up an Export Import business in India helps the
traders to enlighten necessary procedures and formalities to start an
International business in India.
Government of India amends formalities and procedures to set up an Export /
Import firm time to time. So, I write this article about setting up an Import /
Export Firm, to let you know an apparent idea about subject. Those who need to
start an export import organization can visit necessary departments to have a
clear idea on this subject How to set up an Export Import firm in India.
Registration and documentation procedures in India
Rental agreement / or own property
Once after forming a firm name, you need to have a rental agreement with the
premise owner. This rental agreement may be required for various government
authorities to register your address proof of firm. While drafting rental
agreement, please make sure, you have paid necessary legal charges as stamp
duty on your document.
You need to make sure all details furnished in the document are in order
including the authorization and witnesses.
If the premise is your own and your firm is a proprietorship concern, you need
not arrange any separate rental agreement, the sale agreement deed of said
premise is treated as a proof of address. However, if the premise is your own
and your firm is a partnership firm involved by other partners, you need enter in
to a rental agreement with other partners.

PAN Permanent Account Number

PAN is an income tax ID number issued by Income Tax Department. PAN means
Permanent Account Number. You need to provide your required information with
supporting documents with Income Tax Authorities if necessary. Most of the
business transactions are now linked with this 10 digit - alpha numerical - PAN
number by government. Separate permanent account number for individual and
firm is required to be registered with income tax department.
Is individual PAN number sufficient for firm name
How to obtain a PAN number for Proprietor, Partnership or Private limited
company
This is a common question among business men who just entered in to the
business. Whether a business man has to obtain a Permanent Account Number
PAN in his firm name, although he has already obtained PAN in his individual
name from Income Tax Department.
Here, if you are a sole proprietor of your firm, your individual PAN number is
sufficient, as there is/are no other partners on your firm. However, if the firm is a
partnership a separate permanent account number PAN in the name of firm is
required to be obtained from Income Tax Department. While applying for the
said common PAN number in the name of company, a copy of individual PAN
number of each partner has to be mentioned in the application form.
If your firm is a private limited company or public limited company, you need to
obtain a separate PAN number in the name of your firm other than your
individual PAN number. While applying for the said common PAN number in the
name of firm, a copy of individual PAN number of each director, has to be
mentioned in the application form. Click here to continue reading How to set up
an export import firm in India Part 2.

In this article I have explained about the procedures and formalities to set up an
export import company in India. Do you wish to add more information to update
this article about setting up an import export firm in India? Share below your
thoughts about starting an export import company in India.

Comment below your thoughts about this subject

How to set up an export import firm in India?
PARTNERSHIP agreement

If your firm is engaged in a partnership, you need to a have a partnership

agreement between partners with terms and conditions as per partnership Act.
The complete details of terms and conditions among partners with share of
profit are mentioned clearly in the agreement.

I personally suggest you to get the partnership agreement registered with the
authorities to settle dispute among partners if arises in future.

CURRENT ACCOUNT opening.

Open with a bank who got effective export import services who does not delay
in crediting foreign exchange etc. preferably with a bank with exclusive
international business.

How to obtain an IEC number with DGFT with branch code

If you need to export or import from India, you need to obtain an Import export
Code IEC from Director General of Foreign trade within the jurisdiction office of
your firm situates. Without an IEC code, no movement of goods from/to the
country to outside is allowed.

DGFT procedures to obtain an IEC number are too liberalized now days. As per
the recent notification, the following documents are required to obtain an Import
Export Code. However, you may cross check for further update with DGFT before
applying for import export code.

1. Bank receipt / demand draft against application fee. This fee is INR 1000.00
while writing this article. You may re-clarify with DGFT before applying.
2. Application form in prescribed format issued by DGFT for issue of Import
Export Code number. This application for is prescribed in Appendix 21B.2.
3. Please attest the application for IEC with you banker where in you have
opened current account in the name of firm to operate export import activities.
4. Self attested copy of Permanent Account Number PAN issued by income tax
authorities.
5. Two copies of passport size photographs of the applicant. You need to attest
the said passport size photographs with your authorized bank.
6. If any partner or partners are non resident interest or holding in the firm or
company exists with repatriation benefits, you need to attach a self certified
copy of Reserve Bank of India approval on the same.

When can an IEC obtained after submitting documents.

Normally, if all documents are in order, Import Export Code is issued by DGFT
within two working days. However, by taking in to consideration of transit time,
you can expect to receive IE code through post office to your official address
within 10 days after submitting documents subjected, all submitted documents
for Import Export Code are in order.

I have written a detailed article about procedures and formalities to obtain

You may click here to

read How to get IEC number to start Import
Export business?
Import Export Code in this web blog.

AD code - Authorized Dealer Code - registration with customs.

Once you obtained IEC if you intend to do export or import, you need to register
your IEC and Authorized dealer code details with the port through which you are
exporting or importing. If you are going to export by sea, you need to register
with sea port customs and if by air, with airport customs also. You can appoint a
customs house agent to get the job done on behalf of you.

What are the formalities for AD code and IEC registration with customs: What
CHA does with your documents for registration.

Along with the Authorized AD code letter received from your bank though which
you are going to transact your foreign trade; you need to attach a copy of IEC
with a covering letter on your letter to be applied with customs officials. The
customs officials normally finish these formalities within an hour.

In this article I have explained about the procedures and

formalities to set up an export import company in India. Do you
wish to add more information to update this article about setting
up an import export firm in India? Share below your thoughts about starting an
export import company in India.
How to set up an export import firm in India Part 3
This article is a continuation of my two articles about setting up an Export
Import firm in India. If you have not read out those articles, please read below:

How to set up an export import firm in India Part 1

How to set up an export import firm in India Part 2
Let us continue with the procedures and formalities in Indian to set up an Export
Import Firm in India.

Registration with central excise department

If your products are fallen under excisable goods, you need to register with
nearest central excise department to claim necessary export excise benefits
under your goods exporting.
The registration has to be done within the jurisdiction where your factory is
situated.

RCMC registration procedures

Many government agencies supports exporters in various levels to boost the
export of the country and such agencies extends all supports including financial
supports to exporters. In order to avail such benefits, an exporter need to
register their product and obtain Registration Cum Membership Certificate from
the respective agencies who deals under specific goods separately.
If you are a manufacturer of a particular product or products, you need to obtain
a registration cum member ship certificate from respective authorities. The
details has been mentioned in my another article called How to obtain RCMC.

Registration with sales tax office

Exporters are eligible to claim sales tax benefits against exports. So, once after
completion of necessary IE code procedures, you need to register with Sales Tax
authorities under your jurisdiction area where in you can obtain necessary
guidelines to act as an exporter or importer.
I hope, I could you explain in detail about the major procedures and formalities
to set up an export import firm in India. As stated earlier, these details are only
for information purpose, as government of India revise the procedures and
formalities to set up an Import Export firm time to time.
Before setting up of such export import firm in India, you may once again
reconfirm the procedures and formalities with necessary government agencies.
Would you like to add more information on this subject about setting up an
export import firm in India?
Share your experience and knowledge about this subject How to start an
Export Import firm in India?
Comments below your thought on How to set up an Export Import firm in India.

An exporters point of view, invoice is the prime document in business. Pl find

below the contents of Invoice:
1. Exporter /Consigner : The details of party who consigns the goods is
mentioned in this column. The name and complete address of consignor to be
mentioned with Country name.
2. Consignee: The details of party to whom the consignment is shipped out to be
mentioned. Normally, the details of overseas buyer is mentioned. In some cases,
when Letter of credit involves, the bank name is mentioned as consignee
starting with To the order of If the cargo is re-sold at destination to a third
party, said column can be mentioned as To Order
3. Buyer: In some cases, consignee may not be the actual buyer. Then the
details of buyer other than the consignee is mentioned.
4. Invoice Number and date: This number is the serial number of sale
transaction used by a seller. This reference number is quoted at many occasions
including authorities to identify the consignment for future reference. This is the
reference number against the said sale used internally by the buyer in all future
reference and files in office also.
5. Buyers order number and date: The purchase order number of overseas
buyer is mentioned here. If the shipment is under Letter of credit, the LC
number and date is mentioned.
6. Other reference if any: You can mention any other reference number to be
declared in related to the said shipment or common.
7. Country of Origin: The country of goods originally manufactured to be
mentioned in this column. In some of the cases, the goods are imported to a
country and the same goods are exported after re-packed and re-balled. It
happens in triangular shipments also. Read more about triangular shipment in
my previous article.

8. Country of final destination: This is the country where the goods are finally
reached.
9. Vessel / Flight: The name of vessel or flight if available. You can also mention
the planning vessel or planning flight name. While mentioning vessel name,
always write voyage number.
10. Pre carriage by: The term Pre carriage by means, the mode of movement
of cargo to port of loading by the shipper. The Pre carriage can be By road, By
Rail By air or By sea.
11. Place of Receipt: Place of receipt of goods by carrier after completing export
customs procedures. If you (exporter) are situated far from load port, the cargo
can be customs cleared at nearest Container Freight station and move to port of
loading. If you are completing customs procedures near the load port, the
column place of reciept and port of loading will be the same.

12. Port of Loading You can mention the port of loading of goods. It can be
airport or sea port of place where you load your goods to aircraft or vessel.
13. Port of Discharge: This is the port where your goods are unloaded from the
aircraft or ship to deliver to the buyers place. Be alert, the port of discharge
column should be filled up with best care. If you handle documentation for
different shipments at time, there are chances to get interchanged the port of
discharge column. You can imagine, what happens if the same got changed.
Shipping Bill is prepared on the basis of Invoice to file with customs clearance
procedures. Bill of Lading is prepared on the basis of customs clearance
completed shipping bill. Once Bill of Lading released with the change of port of
discharge, your cargo will reach to destination where you mentioned the port of
discharge in the Invoice.
14. Place of Delivery: If your buyer is located far from port of discharge and he
need to get the goods near to customs supervised ware house (Container freight
station CFS), the Bill of Lading issued at port of loading has to be mentioned the

said place of delivery. Once goods unloaded at port of discharge by ship or

aircraft, the cargo is moved to the said location. This is the place where importer
files customs documents for import and take delivery of cargo. In other words,
responsibility of carrier to deliver the goods is up to this place. Importer has to
move the goods from place of delivery to final destination of goods at his cost.
15. Terms of Delivery & Terms of Payment: As I have explained in previous
articles, the terms of delivery like EX-WORKS,FOB,C&F,C&I,CIF,DDU,DDP etc. as
agreed both you and your buyer. Terms of Payment also as explained earlier like
LC,DA,DP etc.
16. Marks and number: The details of marking you have done on parcels to be
exported. Also the number mentioned on the parcel. Suppose you have 10
packages to be exported. You have labeled or marked as 1,2,3,.10 serial
numbered on each parcel , and written complete address of consignee and your
address under respective heads. Here, you write marks and numbers as, 01
10 As addressed in the column of marks and numbers. The proper marking
and labeling is very important while shipping less container load (LCL).
17. Number and kind of packages: In this column, you need to mention the total
number of packages in the said particular shipment. If you export total 10
packages you can mentioned 10. As you know, there are various kinds of
packaging modes. For example: wooden box, drums, corrugated carton boxes,
pallets etc. depends up on the nature of cargo. So you can mention the mode of
packages you packed the said 10 parcels. If you have packed the said 10 parcels
as pallets, you can mention the column of number and kind of packages as 10
pallets.
18. Description of Goods: The Description details of goods are mentioned in this
column. Also be alerted that if the shipment is under Letter of Credit, the words
mentioned on LC to be matched exactly with your words in documents. I
personally suggest, if any spelling error occurred while releasing Letter of credit,
let the same spelling error be in the documentation if not changing the meaning
of whole body of description. By this statement, I would like to make you
remember once again about the importance of accuracy to be maintained in

documentation matching with the words of Letter of Credit. Hope you followed
me.
19. Quantity: Number of quantity against which you are selling. Say, you are
selling your product per piece and packed 10 pieces in once package and total
10 packages. Means, you are selling 100 pieces. You mention in quantity
column as 100 pieces. If you are selling on per kg basis, you mention 100kgs in
quantity column.
20. Rate: In the column rate, you have to mention the unit selling price of
goods. Say, rate per piece, rate per kg. etc. If you sell at USD 10 per piece, you
can mention USD 10.00.
21. Amount: The amount of said goods are mentioned here. As per the above
example, you mention USD 1000.00
22. Total: If you do not have further items to be included, you can mention the
total amount of invoice. Say as per above example: USD 1000.00
23. Amount in words: Please note, the amount in words to be matched with the
amount in figures mentioned.
24. Declaration: While declaring and signing the invoice means, you are stating
all information given in invoice is true. The words of declaration mentioned in
the invoice may differ from country to country based on their respective law.
25. Authorized signatory, rubber stamp and Date : Means, the person signs on
invoice with rubber stamp of the firm. Authorized signatory means, the person
to who the exporter authorize to sign invoice on behalf of the exporter.

How to get export order from overseas

buyers?

Getting an export order is the major task of any export business. Every business
individual or firm has their own market strategies to obtain export orders.
Without receiving an export order, the company can not survive.

Beginner of any export firm focuses on the strategies to get export orders to sell
their product.

How to obtain export orders?

I give below some of the tips on obtaining export business order.

1.

Digital world changed each human being in the world widely for the

past two decades. Information technology plays a vital role in all sectors
especially in international business. Before 1990s, getting a contact of foreign
buyer was a herculean task. Now world changed like anything. I will always put
you as first tool of international marketing as the utilization of internet service.

How to use the service of internet in marketing your

product?

a) As I have mentioned in previous article, launching of a quality website is a

reflection of your firm and you can update time to time with necessary
information about your product updating. You will get credibility and initial
respect on your product and your firm as well. Uploading images of your

product, manufacturing unit, manufacturing process etc. boost your reliability in

international market.

b) Search Engine Optimization (SEO) plays a vital role in searching the content
tags of your details by any one looking for a supplier of product similar to yours.

c) Joining with Social media like face book, twitter, plaxo, linked in. Do not forget
to regulate false comments by proper administration.

d) You tube; flicker, e-magazines etc. also can be used to increase your export
market.

e) Writing articles on your website helps the readers of internet to identify your
caliber in the trade.

2.

Effective communication plays an important role in

business market. If you can effectively communicate with the buyer to convince
the quality and price of your product, the buyer will surely take initiation to ask
you send sample of your product and later place the order.

3.

You can send samples as per buyers requirements. While

sending export samples, at least two sets of samples to be drawn properly. One
you can send to the buyer and one can be retained with you. The sample you
retained helps you to match with the sample you sent to buyer while
manufacturing or procuring, once you obtained final purchase order from buyer.

4.

Attend in Trade fair, exhibit your product. There are many

International Trade fairs conducting within the country and abroad, where you
can exhibit your product to attract foreign buyers.

5.

Export promotion agencies have different source of

contacts in international level. They help you to guide proper marketing in the
trade. They also extend their services in finding buyers for your product.

6.

Commodity Board also plays a vital role in international

marketing to help their members to find a foreign market. You can have a
frequent contact with them for necessary sales leads to communicate.

7.

Government Embassies: Respective Government embassies

extend their service in helping exporters to find an international market in their

country.

8.

Personal meet: Once you have a personal contact, you can visit

the buyer in person and generate a good business relationship.

9.

Appointing an Agent: Some of the exporters appoint an agent

in the targeting country, and through the said agent exporter orders are
procured. All the required services are done by this agent including the technical
problems if any.

10.

Through contacts of friends and relatives:

Personal relationship of friends and relatives also helps to generate a good

business relationship between buyer and seller for mutual benefits. Also read Terms of Payment in Export and Import

What happens if overseas buyer not

paid export bills discounted

I hope, the above tips on how to get export order help you to generate a good
business.

Would you like to share your experience about this subject How to get export
order from foreign buyers?

Share your knowledge and experience to add information on this subject about
Export Marketing - tips to get export orders from foreign countries.

Procedures to prepare Purchase Order.

In this article, let us discuss about Purchase order in international trade. What is
Purchase order? Who prepares purchase order? What is the importance of
purchase order? How is purchase order prepared?

I have already discussed about dispatch of export samples and other steps to be
taken to procure export order in other articles in same website.

Now let me explain about purchase order. How does purchase order work?

Once after approval of your sample by overseas buyer, the next step is on
negotiation price of sale. You can quote your price of goods with all terms and
conditions of sale. Once after approving each other on price of goods, terms of
payment, terms of delivery and all other conditions on the sale, you send a Pro
forma Invoice to overseas buyer. Pro forma Invoice is nothing but a commitment
of sale by seller to buyer with the terms and conditions of sale. Please note, the
pro forma invoice is only a binding agreement but not a commercial Invoice.
Based on pro forma invoice, buyer prepares sale contract with complete terms
and conditions of contract. Then the said contract is sent to you duly signed by
your buyer. Once after receiving the contract of sale you sign and return back a
copy to your buyer as a proof of acceptance of sale contract by you. Once after
receiving the contract of sale by buyer, he places the order or arrange with his
bank to open a Letter of Credit which ever agreed by both agreed.

What are the contents of a purchase order?

As I have explained above, purchase order is prepared on the basis of mutual

agreement between buyer and seller. Some of the contents of purchase order
are product specification, price, terms of delivery, terms of payment, mode of
transport, validity of shipment etc. Since the seller has to supply his goods on
the basis of purchase order, all terms and conditions to supply goods are
mentioned in a purchase order.

Who signs purchase order?

Since purchase order is prepared by buyer, obviously buyer signs a purchase

order. However in most cases, buyer sends purchase order to seller and requests
him to sign and sends back to buyer as a proof of acceptance of such purchase
order.

Can a purchase order be amended by buyer?

Purchase order can be amended before effecting shipment, but with mutual
understanding between buyer and seller. If any amendments on purchase order,
a revised purchase order has to be sent to seller with such amendments.

Should an export purchase order have buyers bank details?

An export purchase order need not have buyers bank details. However, bank
details of overseas buyer are ideal to mention in an export purchase order. Bank
details of buyer help supplier at different levels of export process. If credit period
is involved, buyer may approach an export credit guarantee agencies for
insurance cover against such buyers on credit worthiness. In such cases, seller
may require buyers bank details to apply with such credit guarantee insurance
agencies for approval of buyers credit worthiness. The buyers bank details are
to be mentioned in a bill of exchange to send to buyer for acceptance.

For the purpose of sending shipping documents to buyer through his bank, the
details of bankers of buyer are mandatory.

Mechanism of Letter of Credit

LC is a common term used in all trade.

When talking of LC, there may have

many questions among traders. What is Letter of Credit? How does Letter of
Credit work? How many types of LC are there? How do these types of Letter of
Credit work? Which type of Letter of credit is safe for Exporter? Which type of
LC is safe for Importer? How to provide credit period to buyer under Letter of
Credit? Can we get my products immediately up on shipping goods under Letter
of Credit?

What is Letter of Credit?

Letter of credit is an assurance given by the buyers bank to remit the amount to
the seller through sellers bank on maturity, as per the terms and conditions of
document based on the contractual agreement between buyer and seller. Now
in simple words, If LC opened on your name as beneficiary, you will receive
amount though the buyers bank (opening bank) on the agreed time. All Letters
of Credit for export import trade is handled under the guidelines of Uniform
Customs and Pracice of Documentary Credit of International Chamber of
Commerce (UCP 600). I know, the above explenation about Letter of Credit is
not perfect. So I request you to read all articles about Letter of Credit in this web
blog.

There are various types of letters of credit like Revocable, Irrevocable,

Confirmed, Unconfirmed, Clean & Documentary, Fixed, Revolving, Transferable,
Back to Back etc. Most common and safe LC is Irrevocable Letter of Credit for
both buyer and seller.

You can go through details about all types of LC in another article in same
website. Also written a seperate artilce about parties involved in Letter of
credit.

When can exporter get money under LC?

As per the agreed terms between buyer and seller, the period of credit is
decided. Based on such period of credit, the time to effect payment by opening
bank (buyers bank) is determined.

What is Sight LC and how does LC at sight work?

Now let us discuss the mechanism of working LC at sight. How does sight letter
of credit work?

Procedures to get money under Letter of Credit at sight.

Opening a Letter of Credit at sight is common practice in the export business.

Under sight LC, the payment of export proceeds sent to sellers bank by buyers
bank immediately up on receipt of original shipping documents as per the terms
and conditions mentioned on LC.

Once after completion of export customs clearance procedures, the exporter

prepares all required documents as per the terms and conditions of letter of
credit. These documents will be submitted with exporters bank, along with the
original LC. Bank verifies all documents and make sure, the documentation is in
order as per LC conditions. These documents will be sent to buyers bank and in
turn to the buyer after necessary approval in documentation by sellers bank.
Once the buyers bank receives the documents, the export sales amount as per
the said documents will be sent to exporters bank. However, the
documentation of each consignment must be as per the conditions of LC at sight
and the buyers bank has the right to reject payment on any violation of such
documentation. This is the procedures under letter of credit at sight.

How long is the Credit period under Letter of Credit:

The credit period of LC can be determined my mutually agreed terms and

condition by buyer and seller before sales takes place.

Some time, the foreign buyer may demand credit period of 30 days, 60 days, 90
days, 120 days etc. However as per government regulation, the total period of
credit should not exceed more than 180 days.

Normally the credit period is calculated from the date of shipment. The date of
shipment is determined on the basis of date of bill of lading or airway bill. You
can alread read about how to open a Letter of Credit in this web blog about
international business.

You can also read more information by clicking What are the advantages of
Letter of Credit to Exporter? How LC is benefited to Importer? Are there any
disadvantages to importer for a consignment under Letter of Credit? What are
the disadvantages of LC to an exporter? Who are the parties involved in Letter
of Credit? How to check authenticity of LC? What is Prime Banker? Yes, I am
sure, once after going through that articles you will have a good knowledge
about Letter of Credit.

Export Documentation
and processes
In this post, a basic idea about export procedures and formalities are explained.
This export process is same in almost all countries with slight variation. I hope
this post helps you in getting a basic training on how to export various products.

In almost all countries, a onetime licensing procedure to act as an

Exporter/Importer is required to be completed. In India, IEC number (Import
Export Code number) is required to act as an Importer or Exporter.

If you are an exporter, you would have already set up an Export company by
following necessary government rules and regulations. By choosing your export
product, you would have sent export samples to your international buyer if
required and got approved. After necessary communication with your overseas
buyer on terms of payment and terms of delivery, you arrange to issue proforma
invoice, in turn you receive export order followed by purchase order from your
overseas buyer. The terms of payment for your export contract could be
advance payment, Documents against Acceptance DA, Documents against
Payments DAP, or under Letter of Credit LC. If you as overseas seller require to
cover credit risk against your overseas buyer, you can approach concerned

authorities to cover insurance. In India, ECGC is the authorized agency who

covers such credit risks for Indian exporters. Being an exporter, you will have an
idea about other risks involved in export. The terms of delivery could be EXWorks, FOB, CFR, CIF, DAP, DDP or any other Inco terms. If you would like to
arrange finance against export , you can approach your bank for preshipmentor
post shipment finance against export orders obtained by you.

If any international quality check agencies like SGS,BVQI etc. are involved as per
the terms and conditions between you and your overseas buyer, such inspection
is arranged. After completing necessary quality check (QC) formalities, the
goods for export are arranged for proper packing to meet export quality.
Palletization or Crating is arranged for safety of cargo. If your export goods are
shipped by sea mode of transport, you decide whether the export shipment is by
LCL or FCL. Necessary information about shipping of LCL may be collected if
sent as LCL. Type of container is decided based on your nature of export goods.

Ok, now the shipment is ready for export. The documentation department
prepares export invoice, export packing list etc. based on the purchased order or
LC. Application for certificate of origin (GSP Generalized System of Preference)
and other required documents required for importer are also prepared.
Necessary documents required for export customs clearance purpose are
forwarded to Customs broker. The export process at customs completes either
by customs broker or your representative directly. You as an exporter decide
whether your export shipment is FCL or LCL. Pre shipment inspections like Phyto
sanitary, Fumigation etc. if required have to be completed before export of
goods.

Bill of Lading or AWB is issued by carrier of goods. If consolidator involved,

HAWB or HBL is issued accordingly. If On Board Bill of Lading required as per
buyers requirement, you have to wait to get the export shipment go onboard
the vessel. If you export your goods from a dry port, you have to wait till the

cargo to go onboard the vessel, if you need On board bill of lading from shipping
carrier.

After completion of export customs clearance procedures and collection of AWB

or Bill of Lading, necessary documents for bank and overseas buyer are
prepared. The export bill can be disounted, arrange for collection of payment if
on credit basis or negotiated if export shipment is on Letter of Credit basis. If
you have availed packing credit from bank, the amount of
discounted/negotiated export bill amount will be adjusted once bank receives
export proceeds from your overseas buyer. If bank does not receive such export
proceeds from your overseas buyer, your bank may crystalize such export bills,
you/bank can approach credit insurance company (like ECGC in India) for claim,
if such cover done by you or your bank.
This article explains about exportation procedures to ship to overseas countries.
The above exportation process is almost same in all countries. Have you
satisfied with this information on different process to export goods? I hope, this
article can enlighten you on basic idea on how to export goods from your
country to other foreign countries.

4 Different types of terms of payment in

International Trade.

If we do not go in detail about definition and deep parameters, I will call this
slogan Business is money. Although business man enjoy his day to day life in
trade, if a loss occurs in business, everything collapse. So payment of any sales
proceeds plays a very important role than any other roles in business.

Most of the beginners of exports may worry about the terms of payment.
Because, unlike other domestic business, you are dealing with a buyer who

situates thousands of miles away from your place crossing borders of your
country. You may or may not know the financial condition or credit worthiness
of your buyer. You may not be meeting the buyer personally at initial stage,
may not be aware of the specific policy of trade of buyers country, no idea
about political status or natural calamity chances of the region etc.etc.

Payment term in any business is a major part of sales contract. Terms of

payment in exports and imports plays an important role in international
business. What are the different types of mode of payment in exports and
imports?

Let us discuss different type of terms of payment in international trade.

The Major ways of making payment in export and import are given below:

How to make payment to overseas seller in International trade of

exports and imports?

Advance payment

With a sellers point of view, an advance payment is the safe mode of payment
for any business including export business. Receiving amount of sales in
advance helps exporter in various ways to plan his financial activities smoothly.
However with a buyers point of view, advance payment carries little risk, as he
advances payment before dispatch of goods. Advance payment of term in

exports and imports is opted by a buyer only when he knows the seller in details
on genuineness as a seller. Also read Advance payment the best way of terms
for business

Letter of credit.( L.C.)

Letter of credit is another type of payment term opted by importers and

exporters. I have explained in detail about Letter of credit and its mechanism in
a couple of articles in same website. The details about letter of credit includes
advantages of LC to an exporter, advantages of LC to an importer
Disadvantages of Letter of credit to an exporter, disadvantage of letter of credit
to an importer, different types of letter of credit etc.. You may read the same to
have a clear knowledge on Letter of credit. Although letter of credit has some
advantages and disadvantages, it is a safe mode of payment in international
trade for both exporter and importer. So LC is one of the safe types of mode of
payment in international trade.

Also read

Letter of credit - How does LC work?

What are the advantages of Letter of

Credit to Exporter? How LC is benefited to Importer? Are there any

disadvantages to importer for a consignment under Letter of Credit? What are
the disadvantages of LC to an exporter? Who are the parties involved in Letter
of Credit? How to check authenticity of LC? What is Prime Banker?

D.A.P or D/P basis - Documents against Payments

Documents against Payment DP/DAP is another term of payment in

international trade. The documents under consignment are delivered to
buyer/importer only after collecting payment of goods by buyers bank. A

detailed article has been written in same website about DP/DAP terms of
payment. You may go through the same to know more about DP/DAP terms of
payment in exports and imports. Also read
Is DP terms of payment safe in export business? How does Bill of Lading work
in DP payment terms?

D.A terms means Documents against Acceptance

Documents against Acceptance are another term of payment in international

payment. I have written a detailed article about DA terms of payment in same
website. You may go through the same for further read.

Can a Buyer (Importer) make part payment in Advance and balance on credit
basis in exports and imports?

Yes, In an international trade, a Buyer can effect part payment as advance and
balance amount with a credit period or under DP terms. Also read
against Acceptance. - How reliable the terms of payment in exports

Documents
How to

make DA mode of payment safe

I believe this article is only a window to have deep knowledge about terms of
payment in international trade. I know, some of you may have a good
experience in handling different types of terms of payment in exports and
imports.

How does Bill of Lading work in DP (DAP)

payment terms of exports and imports?

I have discussed in detail about the terms of payment in another article in same
website. You may go through the same to have a clear idea about DP term of
payment.

Here, let us discuss the role of Bill of Lading under DP terms of payment in a sea
shipment of export and import. How does a Bill of Lading work in a payment
term Documents against Payments DP?

Bill of Lading plays a vital role in Documents against Payments DAP DP terms of payment, compared to other terms of payment other than Letter of
Credit. As you know, without presentation of original bill of lading with carrier of
goods at port of destination the goods can not be released, unless otherwise
Original bill of lading surrendered at load port or Seaway bill is issued in lieu of
original bill of lading?

Can Bill of lading be surrendered under DP payment terms in Exports and

Imports?

Under Documents against Payment term of payment, Original bill of lading can
not be surrendered. Because, the payment against sale of goods are paid on the
basis of acceptance of original bill of lading with other shipping documents
required to take delivery of goods. So under a DP terms of payment in
international trade, surrender of original bill lading should not be affected by
seller exporter of goods, as original bill of lading is a hold with exporter to get
his sale amount.

Normally once after releasing Bill of Lading at port of loading by carrier of goods,
the exporter submits original bill of lading with other required shipping
documents with his bank to deliver to his overseas buyer for import customs
clearance and other reference. Once after receiving the necessary documents
from the exporter, his dealer bank sends the said documents to overseas
buyers bank after necessary noting and endorsement. Overseas buyers bank
receives documents and notifies buyer to accept goods as per the terms and
conditions of payment agreed with supplier each other.

The overseas buyer

accepts documents, by paying export proceeds as per purchase order against

pertaining shipment and collect original bill of lading and other required shipping
documents for import to take delivery of goods.

Here the point is, the buyer can take delivery of goods only by submitting
original bill of lading to the carrier of goods, issued by carriers counter part at
load port. If the terms of payment is Documents against Payment (DAP or DP),
the buyers bank can deliver original bill of lading with other documents to
buyer only after receiving the amount of sale of goods pertaining to said
shipment. Without original bill of lading, buyer can not take delivery of goods.
In other words, under the term Documents against Payment, buyer can not take
delivery of goods unless he remits invoice value of goods to his bank. In turn,
after collecting the amount of sales under said consignment, buyers bank
remits the said amount to seller through sellers bank. Also read Also read
Advance payment the best way of terms for business
does LC work?

Letter of credit - How

Is DP terms of payment safe in export business?

Documents against Acceptance. - How reliable the terms of payment in

exports
Difference between Pro forma Invoice and Commercial Invoice in
Export Import Trade
One of the common questions arises in a business terms is the difference
between pro forma invoice and invoice. What is pro forma invoice, What is

commercial invoice and what is the difference between commercial invoice and
pro forma invoice.
Let us discuss when the pro-forma invoice is issued and when invoice is
issued.
Once after agreeing the terms of contract of sale, the buyer has to issue a
purchase order or Letter of Credit. Just before this process, the seller has to send
a pro-forma invoice to buyer, mentioning complete details of agreement of
sale. Normally, purchase order or Letter of credit is opened on the basis of this
pro-forma invoice sent by the seller.
So, we can treat pro-forma invoice as a document of commitment to sell the
goods to the buyer as per the terms and conditions agreed between both in
person, over telephone, by fax, email or any other mode of communication. In
other words, we can treat the pro-forma invoice as a confirmed purchase order
from the seller, although the official purchase order has to be issued by the
buyer. The pro-forma invoice is issued before sales takes place.
Once after receiving pro-forma invoice from the supplier, the buyer sends a
purchase order or opens a letter of credit to the supplier. As per agreed date of
shipment, the seller arrange to ship the goods. The seller issues commercial
invoice at this point of time. Invoice is a prime document of sale in any business.
We can call as commercial invoice. Invoice and commercial invoice is same.
Commercial invoice is used to record accounts receivable for the seller and
accounts payable for the buyer. The content of commercial invoice is almost
same as pro-forma invoice. However, the final sale price may vary with the proforma invoice, as pro-forma invoice is issued prior to actual sale takes place.
However, in some countries, pro-forma invoice is accepted in lieu of commercial
invoice. to process import customs procedures to release cargo out of country.
You can also read Difference between Purchase Order and Pro forma Invoice
and Difference between Purchase Order and Commercial Invoice

What is ECGC and how do ECGC protect exporters?

I have been getting many enquiries about the risk coverage on nonpayment of
export proceeds by buyer like How to provide credit to the overseas buyer? Is
credit extending to importer safe? How can an exporter provide credit to an un
known buyer? What is the remedy to provide credit to an overseas importer? Is
there any insurance to cover the risk of nonpayment of export goods value? Is
there any insurance to protect the exporter in nonpayment of exported amount
Etc.etc.
Export Credit Guarantee Corporation is a central government undertaking body
to provide credit guarantee on the default of payments by the buyer. It works as
an insurance firm who guarantees export payment, if the buyer defaults in
making payment.

Procedures with ECGC to cover insurance:

Once after finalizing the order, the buyer execute a purchase order to the seller
with the terms and conditions as agreed by both. The purchase order should
contain full details of buyer and buyers bank account details. The exporter
approaches Export Guarantee Corporation to get approval on the buyer with
amount of limit. Here, the ECGC with their

available contact with overseas network finds out the credit worthiness of the
said buyer and arrives a figure of creditworthiness and inform the maximum
limit of amount can be shipped at any point of time. Export Credit Guarantee
Corporation collects premium on the amount of approval and issue insurance
policy accordingly.

The exporter can apply with ECGC for insurance on shipment wise order as
specific insurance policy, or at lump sum as comprehensive policy. If an exporter
obtain a specific policy, the contract of insurance is only for that particular
shipment. You as an exporter has to pay premium only against the said

shipment. If you prefer to obtain a comprehensive policy against any buyer, you
can get approval from ECGC, the amount of credit worthiness of the said buyer.

Export finance - a Key factor in Export trade

As you know finance plays prime role in any business, even in Export also. Each
exporter of any country is highly supported by the government in all means to
earn foreign exchange, one of the major indicators of wealth of nation.

In this article, let us discuss some of the export financial assistance provided by
government agencies to promote export business. These financial assistance to
exporters varies from country to country depends up on their policy adopted
time to time. However most of countries extend a good financial support to
exporters to earn foreign exchange from other countries to strengthen each
countrys foreign exchange reserves, in turn financial strength.

Some of the major benefits supported by government are given below. These
financial benefits to exporters may vary from country to country. I provide below
the following financial benefits in general. You may cross check with your
government authorities to get authenticated information. These details of
financial assistance to exporters are given to let you know an idea on how
government supports exporters in assisting financial support.

Finance up to 90% of FOB value of exports

Financial support to exporters up to 90% of FOB value of exports are provided by

most of the banks based on the instruction of government to boost exports.
Some of the banks extend a financial support of 100% export value, with a
narrow interest rate fixed by government time to time.

Interest rate as low as below 6% per year.

Most of the banks provide financial assistance to exporters with a low interest
rate as 6% per annum. This rate of interest is very nominal which helps
exporters to procure materials, packing or for other export related purposes.

Credit period up to 270 days

Extending credit period up to 270 days is one of the supports under financial
assistance to exporters by government through authorized bank. A credit of
almost 10 months is a good period for an exporter with least rate of interest on
financial assistance to help him to utilize this fund for export purpose. During
this period of 270 days, an exporter can procure material, export, and collects
his amount of sale of exports to repay such loan amount.

Pre shipment finance Packing credit

Packing credit is one of the other financial assistance to exporters provided by

bank. Getting financial assistance before shipment of goods is a great help for
any exporter is concerned. Here, an exporter can avail finance before shipment
which is called Packing Credit. Packing credit is pre shipment financial assistance
to exporters allotted by banks on the basis of export stocks available for
exports. The exporter has to produce copy/original of necessary export orders
along with the details of stocks available for exports. The bank authorities
inspect the exporters premises and collect data of such stock ready for export
and assess the value. Based on such valuation of stock, the exporter is allotted
packing credit loan by banks with a very narrow interest rate.

Short term credits

Exporters are also eligible to avail financial assistance in the form of short term
credits from authorized banks. Short term credits are provided by banks on the
basis of instructions provided by government time to time to help exporters to
meet their financial requirements.

Post shipment finance - Bill discounting/Bill Negotiation etc.

Financial assistance to exporters after exports in the form of Bill

discounting/negotiation is provided by banks with a low interest rate. This
financial support also helps exporters to procure/manufacture new products for
exports for next export consignment. Once after completing the procedures of
an export consignment, the exporter submits all required documents to send to
overseas buyer. If the export sale contract between buyer and seller is on credit
basis, normally the export bills are sent to buyer for collection of payment on
maturity date, mutually agreed. When submitting such documents, if the

exporter requires finance for upcoming export consignments, he can apply for
post shipment finance by discounting of export bills already exported. In the
case of Letter of credit, negotiation procedures are followed to avail post
shipment finance.

In short, as per governments policy, no exporter should suffer for want of funds
to export goods. Most of the government supports up to 90% of FOB value of
goods with very least rate of interest up to 270 days. This is a great chance for
any business man to be attracted to earn foreign exchange.

I hope, I could explain about the financial support extended to exporters to

boost export of a country to earn foreign exchange, in turn the financial
strengthens of a country.

PROCEDURES AND DOCUMENTATION FOR AVAILING EXPORT INCENTIVES

Exports are given priority in India and enjoy lot of incentives. However, the
major problem lies in the process of realizing them. Unfortunately, exporters
have to approach multiple organizations for seeking sanction. Each organization
prescribes its own exclusive method of documentation as well as procedure form
the stage of submission of claim till sanction. The documentation and
procedures are diverse with each incentive provided. This is not the end of their
problems. Incentives are available at post-shipment stage but they are
connected with the documents generated at the time of shipment. If exporter
does not pay adequate care and attention at the time and stage of export
shipment in providing complete and adequate information in the documents in a
proper way, their claims for export incentives are adversely affected. It is
essential to the exporters to plan carefully in respect of incentives, even at the

time of shipment, though their benefits are available only after completion of
the shipment.
In the absence of adequate planning, it will upset their fund flow and equally the
total realization may not be remunerative for effecting exports. Exporters have
to draw a suitable plan of action for claiming incentives in a timely manner to
avoid delays and cuts in realization. Exporters have to understand the different
procedural formalities, connected with multiple and diverse agencies. This would
ensure proper compliance for availing of full benefit of incentives. In this area,
Government has to rationalize the incentives by opening a single window
approach for sanction of multiple claims.
TYPES OF INCENTIVES
Government of India has been endeavoring to develop exports through various
financial and non-financial assistance and fiscal incentives to the exporters.
They are divided in two categories. They are:
1. Incentive Linked to Export performance
(a) Duty Drawback(DBK)
(b) Excise Duty Refund/Exemption
(c) Duty Free Replenishment Certificate
(d) Duty Entitlement Pass Book Scheme.
2. Duty Exemption Scheme
Advance License
3. Fiscal Incentives
(a) Sales Tax Exemption
(b) Income Tax Exemption

4. Claim for Rail Freight Rebate

5. Claim for Air Freight Assistance
DOCUMENTATION AND PROCEDURE FOR CLAIMING INCENTIVES
The procedure for claiming these incentives is different for different incentives.
Duty Drawback (DBK)
The duty drawback refers to the refund in respect of Central Excise and Customs
Duties paid in respect of raw materials and other inputs used in the manufacture
of the product, prior to export.
Whom to Apply: The customs house in whose jurisdiction the exporters factory
or warehouse is situated.
When to Apply: An exporters is entitled to claim the duty drawback as soon as
the export of goods is completed. Delivery of goods at the port of destination is
not essential. Export for the purpose of claiming duty drawback is evidenced by
Let Export Order. Claim application is to be submitted with in a period of three
months from the date of Let Export Order, issued by the Customs Officer. The
exporter can seek extension of period for submission of claim. The Assistant
Commissioner can grant extension for a period of three months, if he is satisfied
that the exporter is prevented from submitting the application.
When Samples are Drawn: In case, any sample has been drawn from the
shipment of goods to determine the contents of the basic materials for fixation
of drawback, the sample report is be given to the exporter within a period of one
month from the date of taking the sample. This report is to be submitted along
with other relevant documents for submitting the claim. Delay in giving the
report will be added to the period allowed for submission i.e. three months
period. For example, if the sample report is given after one month and twentyfive days, the exporter can submit the claim within three months and twentyfive days, in addition to the discretionary extension period of three months.

Drawback Rates: The Government of India announces the rates of duty

drawback every year on 31st May, product wise in the drawback schedule.
Generally, the rates are expressed as a percentage of the FOB value of the
goods exported. All such rates are called All Industry Rates. The rates are made
effective from 1st June of every year. In case, duty drawback rate is not
announced for a particular product, the manufacturer/exporter is known as
Brand Rate. In case, the rate of duty drawback is less than 80% of the duties
paid, the exporter can submit an application for suitable upward revision. This is
known as Special Brand Rate. The application is to be submitted to Directorate
of Duty Drawback Ministry of Finance.
When Duty Drawback not Admissible: Duty drawback is admissible for the
export of all the notified products. However, in the following cases, it is not
admissible:
(a) No excise/customs duty is paid for the manufacture of export product
(b) Amount of drawback is less than 1% of the FOB value of the goods. However,
if the amount of drawback is more than Rs.500, it can be claimed
(c) If the export proceeds are not realized within six months
(d) If the amount of foreign exchange spent on the inputs used for the export is
more than the foreign exchange value of the exports. In other words, value
addition is negative
(e) Cenvat Credit is availed of
How to File Claim: The procedure for claiming duty drawback depends upon
whether the processing of shipping documents has been computerized or not.
The exporter is not required to file any separate application for claiming duty
drawback, if the processing of documents has been computerized at the
jurisdiction customs station. Where processing has not been computerized,
separate application is to be submitted for claiming duty drawback. Triplicate
copy of the shipping bill becomes the application only after the Export General
Manifest is filed.

Documents to be submitted: The following documents are to be submitted to

the Directorate of Duty Drawback:
(a) Triplicate copy of the Shipping Bill
(b) Copy of bank attested invoice
(c) Copy of Packing List
(d) Copy of Bill of Lading/ Airway Bill
(e) Copy of ARE-1 form, where applicable
(f) Insurance Certificate, where necessary
(g) Copy of the Test Report, where required
(h) Copy of communication regarding Special Brand Rate fixation
(i) Copy of the export contract or letter of credit as the case may be
(j) Pre-receipt for drawback claim
How Claim Amount is paid: The Customs House that has the jurisdiction over the
port or airport through which exports are affected makes the payment.
How Delay in Payment of Claim is avoided: when the claim application along
with complete set of documents is submitted, an acknowledgement in the
prescribed form is issued to the exporter within 15 days from the date of filing
the claim. The duty drawback is to be paid to the exporter within a period of two
months from the date of acknowledgment. In case of delay, interest @15% per
annum is paid for the period of default. Due to compulsory interest provision,
normally, claims are settled in time.

I have written about Packing credit/Pre shipment credit, where in I have

explained basic idea about Pre shipment Finance provided by bank.
What is Pre shipment loan?
Any advance or loans or any credit extended to exporters by bank for the
purpose of manufacturing,procuring,processing or packing of goods before
shipment can be called Pre-Shipment finance. Pre shipment finance is also given
as working capital expenses towards services on the basis of LC (letter of credit)
in favor of exporter or in favor of some other person by overseas buyer or his
behalf or any other evidence.

What is the period of Packing Credit/Pre shipment finance to exporters by bank?

Normally, period of pre shipment finance is determined by the bank based on
the circumstances of individual case. Each exporter requires pre shipment
finance based on their nature of requirements such as time for procuring export
goods, processing or manufacturing and shipping. Once after obtaining Pre
Shipment loan from bank, exporter submits necessary export documents with
bank immediately up on each shipment takes place. Once overseas buyer paid
exporters bill against export of goods, bank adjust such realized amount with
the pre shipment loan already provided to exporter.

What happens, if export bills not submitted after availing pre shipment
finance?
As per bank guidelines, exporter is required to submit export documents with
bank after export takes place. If pre shipment advances are not adjusted by
submission of export documents within 360 days from the date of advance, the
advances will cease to qualify for prescribed rate of interest for export credit to
the exporter. The commercial interest rate is charged from the date of

disbursement of pre shipment finance. Refinance is provided by Reserve Bank

for a maximum period of 180 days with permission.

How does bank disburse Pre-Shipment Finance?

Bank may release Pre Shipment Finance either in lump sum or in stages based
on the requirements of exporter with satisfaction by bank against execution of
export order. Bank maintains separate account for Packing Credit /Pre shipment
finance to monitor the period of sanction of such pre shipment loan and end use
of amount. The various stages of processing,manufacturing is monitored by
bank by maintaining a separate account to ensure that the outstanding balance
in accounts are adjusted by transfer from one account to the other and finally by
proceeds of relative export documents on purchase, discount, etc. The major
threat of bank is to monitor time to time on the progress of fulfillment of export
orders by exporters. Exporters are required to update with bank on the changes
or amendment in export orders on addition or deletion of export orders.

Post shipment finance in Export Business

Thursday, August 27, 2015

Category : Export incentives and benefits

You are an exporter and obtained some export orders. Once after shipping a
consignment on 60 days credit basis. Now you need to send next shipment. You
do not have enough finance to procure goods or to meet other expenses. Here,
Bank provides a short term loan with very concessional rate of interest to
safeguard you to fill the gap of credit period you have extended to your buyer
say 60 days. So you can avail a shorter loan from bank and proceed with your
planning to export next shipment.

What is SGS Inspection in Exports and Imports?

The full form of SGS derived from French which is called Socit Gnrale de
Surveillance.

SGS is an international inspection agency works all over the world in the field of
improving quality and productivity, reducing risk, verifying compliance and
increasing speed to market.

SGS has offices worldwide to facilitate exporters to improve best quality of

products exporting. SGS is a free independent body specialized in various levels
with a motto of serving best quality. Since the distance from buyer and seller is
very far, the buyer can appoint an international inspection agency like SGS to
make sure on the quality of goods he buys. Inspection charges of SGS are met
by either buyer or supplier as per mutually agreed terms before export.

Some of the foreign buyers require the suppliers to get the inspection done by
SGS with certificate of approval. This type of inspection helps buyers to make
sure about the quality of goods as per his required parameters. While placing
purchase order, the buyer provides the complete specification of goods. The
buyer insists SGS inspection as one of the terms and conditions of export
contract. The exporter arranges SGS professional locally to inspect export
goods, SGS satisfies the quality as per buyers requirements and certifies. Once
after completion of satisfied inspection by meeting all required specification as
per buyers requirements, the SGS issues a certificate on inspection. This
certificate has to be enclosed along with other shipping documents to buyer.

SGS charges are paid either by the exporter or importer as agreed at the time of
contract.

The advantages for supplier is that he makes sure on the quality of goods
exported and the reliability and business relationship strengthens between
buyer and seller. Do you wish to add more information about SGS operation and
their role in maintaining quality of export goods? Would you like to share your
experience about SGS inspection? You may also read Maintain quality of goods
- a prime factor in exports

SGS means Socit Gnrale de Surveillance (French), and I hope I could explain
a brief description of SGS.

Please find attached some of the PSI (Pre Shipment Inspection) agencies world
wide. Click here to read