Manage the risks of importing
Importing can be an effective way of finding low-cost supplies, reducing your costs and making your business more competitive. It might even allow you to branch out into a whole new product line, selling something that isn't generally available in the UK.
But at the same time, importing is more complex than buying from a UK supplier. And when things go wrong, sorting them out can be more difficult and expensive.
Manage country risk for imports
Different cultures, regulations, languages and other country risks for importers
Conducting business overseas always carries risks. The business culture may be different, or there may be different regulations that you aren't aware of. The risk of confusion can be particularly high if your suppliers speak a different language.
Different countries can also present other potential problems. For example, a country could suddenly introduce new export controls, be subject to new UK import controls for some types of goods, or suffer a natural disaster.
Market research is an important way of reducing these risks to your business. The more you find out about a country and its politics, economy, culture and business environment, the less likely you are to get caught out by unexpected problems. Read more about researching and entering overseas markets. It's important to remember to keep up to date so that you know when things change.
A clear agreement, using internationally accepted Incoterms to set out exactly what delivery terms you have agreed, also helps to reduce the risk of confusion. Read more about the basics of international trade paperwork.
Levels of risk when importing
The risks vary, depending on which country you are dealing with. In general, countries within the EU are the safest, while some developing countries can be much riskier.
Investment promotion and protection agreements (IPPAs) can help to reduce the risks. A country that has signed an IPPA with the UK agrees not to treat UK businesses unfairly.
Whatever country you are dealing with, you should try to have a contingency plan in case things go wrong. If the risks are high, it's sensible not to commit yourself long-term to sales or prices that rely on these imports. Unless you have local expertise, you may decide that some countries are simply too risky to deal with at all.
Assess the reliability of overseas suppliers
Managing supplier risk for imports
As in the UK, you want to deal with reliable suppliers who can deliver what you want, in the right quantity and quality, on time:
- You should assess product quality and check that the goods you buy are suitable. Read more about how to ensure imported goods meet your requirements.
- Investigating suppliers' management systems can help reassure you about product and service quality. You also want to be sure that they follow ethical working practices - for example, your reputation could suffer if you buy from suppliers who mistreat their employees. Find out whether certification has been issued by an accreditation body.
- You may need to check where raw materials come from, particularly if you want to be able to claim a preferential rate of import duty.
- You need to know whether the supplier outsources any work to subcontractors. If so, you may want to assess these subcontractors as well.
- You should check that suppliers are who they claim to be. Frauds do occur in international trade.
Visiting potential suppliers is usually an essential part of supplier assessment.
Managing your overseas suppliers
Dealing with the right supplier helps reduce the risks of poor quality goods or delivery problems. Even so, suppliers can fail to meet their obligations. Enforcing your contractual rights can be difficult, time consuming, expensive or even impossible.
Choosing the right payment method can reduce the risks and the consequences if things do go wrong. Read more about how to avoid payment problems with imports.
Read more about how to manage overseas suppliers.
Ensure imported goods meet your requirements
Any goods you import must comply with relevant UK regulations. You may also require an import licence before you can bring certain goods into the UK.
Find out if you need an export or import licence.
Product safety can be a problem, as products manufactured overseas may not meet UK standards. You should be aware that you might be liable for any harm or damage caused by a product you import. Read more about product liability.
Even if goods meet UK legal requirements, that does not necessarily mean that they suit your needs. For example, a component manufactured in the US using imperial measurements might not fit with the metric parts you normally use. The way a product looks or performs might not match UK customer demand.
Product testing when importing
You can reduce these risks by getting samples of products, and if necessary submitting them for testing. Testing can be important for products that must meet UK legal standards. You should be aware that some overseas suppliers may falsely claim to meet UK standards.
UK testing centres are accredited by the United Kingdom Accreditation Service (UKAS). Search for accredited testing laboratories.
Accreditation bodies are established in many countries with the primary purpose of ensuring that testing laboratories are subject to oversight by an authoritative body.
Accreditation bodies, which have been evaluated by peers as competent, sign arrangements that enhance the acceptance of products and services across national borders, thereby creating a framework to support international trade through the removal of technical barriers.
These arrangements are managed by the International Accreditation Forum (IAF) in the fields of management systems, products, services, personnel and other similar programmes of conformity assessment, and the International Laboratory Accreditation Cooperation (ILAC), in the field of laboratory and inspection accreditation.
Read more about laboratory and inspection accreditation.
Minimise the impact of import delivery problems
Controlling the risk of damaged, delayed or incomplete deliveries
The further away your supplies are coming from, and the more fragile or perishable they are, the higher the risk that they could be damaged or lost in transit.
It's important to make sure you have a clear contract setting out who is responsible for transport at every stage. You can minimise the risk of confusion by using internationally accepted Incoterms to set out what the delivery terms are.
You should also make sure you take out the right insurance.
UK import procedures
Clearing goods through customs in the UK can be a problem if the right paperwork has not been provided. Depending on the contract you have agreed with your supplier, you may be responsible for this, and for onwards delivery to your premises. You may want to use an import agent and a freight forwarder to handle these on your behalf. Read more about the basics of international trade paperwork.
Depending on the goods, you may also need an import licence.
Dealing with problems when importing
It's not uncommon for imports to be delayed, or to find that when goods arrive the shipment is incomplete or contains damaged goods. It may be the supplier's responsibility, your fault, or caused by shipping or customs delays. In any case, it's worth agreeing in advance how deliveries will be inspected and how problems will be handled. In most cases, returning incorrect shipments and waiting for a new delivery is too expensive and time consuming.
You may want to consider holding extra stocks of imported goods, or arranging deliveries a few weeks before you need them. Although this increases your stockholding and financing costs, the knock-on effects of running out of supplies altogether could be more serious.
Read more about international transport and distribution.
Avoid payment problems with imports
Import payment methods and financial planning
If you pay for imports in advance, you risk finding that the goods never turn up, or are faulty. Recovering your money or getting compensation can be very time consuming and expensive, and may even prove impossible.
You can protect yourself by using suitable payment terms. Within the EU it is not uncommon to ask suppliers to offer you credit - in the same way as you ask for credit from your UK suppliers.
Suppliers may prefer you to use a documentary collection. This payment method helps protect them if you fail to pay after delivery. Your bank can advise you on what is involved.
In a few cases, the supplier may want you to use a letter of credit. A letter of credit is a guarantee from your bank that they will pay the money owed to the supplier on the production of specified documents. This can be complex and care should be taken in using them.
Different payment terms also affect the timing of payments. For example, payment might be required at sight - ie as soon as you have received evidence that the goods have been shipped, before they even reach the UK. Before agreeing a contract, you should check the effect on your cashflow.
However you are paying, it's important to know exactly what costs you and your supplier are each responsible for. These typically include shipping (or air freight) to the UK, UK import duties and taxes, onwards delivery to your premises and bank charges for international payments.
You should agree a clear contract. A good relationship with your supplier also helps. Read more about managing overseas suppliers.
Bear in mind that some costs may fluctuate. For example, import duties could change. If you are dealing in a foreign currency, the exchange rate also varies. Read more about how to manage foreign exchange risk for imports.
Manage foreign exchange risk for imports
If you agree a purchase price in a foreign currency, the cost to you in pounds sterling could increase if that currency strengthens against the pound.
One way to protect yourself is to insist on dealing in pounds, shifting the risk to your supplier. However the supplier is likely to want to increase their prices to reflect this risk, or may be unwilling to deal with you at all on those terms.
Alternatively, you can protect yourself against changes in the exchange rate using forward foreign exchange contracts or currency options. These allow you to fix the exchange rate at which you can buy the foreign currency. Read more about foreign currency and exchange risks.
It's worth bearing in mind that even if you protect yourself for a particular contract, you still face longer-term risks. For example, a supplier in a country with a strong currency might no longer be competitive the next time you want to place an order.
If you want to place regular orders with a supplier, you may be able to protect yourself for longer by agreeing a fixed price contract, or arranging medium-term foreign exchange protection. At some point, however, you may need to look for alternative suppliers. It's worth keeping up to date with what's available elsewhere. Read more about how to manage overseas suppliers.