We have said that once the foreign buyer has sent you a written order and you have accepted this order, a contact of sale can now be considered to be in place. At this point, a number of actions and activities need to take place in order for the order to be successfully completed. This series of activities is often referred to as the export sequence and can be considered an important component of the overall export process. It involves those activities necessary to ensure that an export order is properly fulfilled. We assume that export sequence begins after your confirmation of the written order/indent sent to you by your foreign buyer (which we will refer to as the importer from now onwards).
The next step is the importer's responsibility. The importer must now approach his/her local bank (referred to as the issuing bank) and request them to issue a letter of credit (L/C) in favour of your firm. The importer will normally provide the bank with a copy his/her written order or indent and a copy of your confirmation of this order. Your confirmation serves as proof that (a) your received the order and (b) that you agree with all of the specifications outlined in the order. For this reason, it is important that you carefully read the order before confirming it! The specifications outlined in the order will become the basis upon which the L/C is drawn up. The issuing bank then forwards the L/C to its correspondent bank in South Africa. The correspondent bank may not necessarily be your own bank. The correspondent bank will then notify you that the L/C has arrived and that you can come collect it.
Once you have received the L/C, your task is to check its contents thoroughly. This is an extremely important task. Documentray credits normally contain certain mandatory information - click here to read more. Banks will only approve payment on presentation of documents that show that you have complied exactly with the requirements of the L/C. If you deviate in any way - even a misspelling of a name or the removal of a comma - may result in rejection of the documentation and end in non-payment of the L/C. Therefore you need to ensure that you can comply with the requirements of the L/C.
If you cannot meet the terms and conditions laid out in the L/C, then you need to urgently request an amendment to the L/C by the importer. You do so by notifying the importer in writing of your requested amendment(s). If the importer agrees to these amendments, he/she will notify of the issuing and corresponding bank to incorporate the amendments as requested. Remember, only the importer can request the ammendments.
Assuming the importer agrees the amendments, the corresponding bank will inform you that the L/C and amendments have been issued and let you have a copy thereof. You need to just check that the amendments are as your request - you never know! Now you have an accepted L/C which ensures payment. The time has come to start producing the goods. You will inform all of the managers and staff of the receipt of the order and request that the production devision to begin producing the goods concerned. Clearly, this process of producing the goods may be quite long and complicated and may require changes to the design of the product and to the manufacturing line. Of course, you will have planned for these changes and adaptations (both in terms of time and cost) before quoting for the business. As export manager you will want to keep an eye on the production process to ensure that you do not fall behind or encoiunter an problems - if you do, then you may want to communicate with the importer to warn him/her of any delays or changes to the product (you may also need approval for these changes).
Once you know the production schedule and expected completion date, you can contact your freight forwarder and book space with your mode of transport of choice - usual sea or air freight for most overseas orders and rail and/or road freight for destinations in Africa (although road and/or rail freight will inevitably form part of the transportation solution even for shipments abroad). The freight forwarder will come back with confirmation that space has been booked with a particular carrier for a particular date. Where containers are involved, arrangements will be made to have these delivered to your premises for packing and collection a short while later. You will supply the freight forwarder with precise shipping instructions and these are communicated to the importer either by yourself or by the freight forwarder.
An important step in the production process is the proper packaging and labelling of the goods for export. You need to ensure that they have been properly labelled, packed and marked ccording to the sepcifications outlined in the L/C or accroding to international standards. Not only do the goods need to meet the importer's requirements, but they need to endure the hazards of intercontinental transportation. Although they may be further packed into a container, there are still many hazards that face your goods. Click here to learn more about the packaging, labelling, marking, packing and handling of materials (inlcuding hazardous materials).
If the importer has requested a preshipment inspection, then now is the time to arrange for this to be done. Normally, the importer will have indicated the company or person that he/she wants to do the inspection. Obviously, you cannot contact the inspection company at the last minute and expect them to come at your convenience. Instead, you will have made arrangements well in advance (perhaps a week or two in advance) and you will keep them in the loop especially if you expect a delay to occur. A good relationship with this insepction company will bode well for your further relations with the importer. The inspection will need to take place before you pack the goods in the container. The inspection company may want to see actual products and you need to be ready to open up already closed packages that they may select at random in order to inspect the goods inside. These will need to be properly sealed again for shipment.
Bear in mind that some importers may require other forms of inspection and/or certification. For example, some importers may require tolerance tests, on-site inspections, destruction tests, or health certification (for certain foodstuffs, for example). These will have been spelled out in the L/C and you need to make the necessary arrangements for these inspections to take place and for the certification to be issued. The cost of these tests may be carried either by yourself or by the importer, but this, too, will be indicated (hopefully) in the L/C.
This is where the export documentation comes into play. The documentation relates to the documentation required by both the export authorities in South Africa and by the importer and importing authorities. Once again, the L/C will spell out what documents are required. Some countries require certificates of origin to be issued by the local chamber of commerce and export permits may even be required for selected products. Your freight forwarder should be able to assist you with (a) obtaining these documents, and (b) with completing them.
The terms of trade (and the Incoterm) that you ahve negotiated with the importer will indicate if the marine insurance is to be obtained by yourself or the importer. If it is your responsibility, now is the time to arrange for insurance cover - again this will be spelt out in the L/C. Marine insurance is required for all international cargoes (not just seafreight). Click here to learn more about marine insurance.
With effect from 01 January 2011 you no longer need to have your F178 attested. What remains is for you to complete field 28 of the SAD500 form, and list the UCR number.
You will need to complete or obtain all the other documentation necessary to support the order such as:
- Commercial invoice
- Packing list
- Certificate of origin (if required)
- Beneficiary certificates
- Specification sheets
- Fumigation certificate
- Shipping instructions
You should also provide your freight forwarder with the details outlined in the L/C, perhaps even supplying them with a copy thereof. Your freight forwarder will need this information to ensure that any and all documents they complete are done so in accordance with the requirements of documentary credit.
At the time and date agreed (and presumably at end of the production schedule), the container will be delivered to your premises for packing. Obviously, if you do not expect to make this deadline, you will inform the freight forwarder, who will arrange an alternate date for the container to be delivered, and you should also inform the importer of the possible delay. If you do not intend to use a container, then you would arrange delivery of the goods to particular delivery point (usually that of the freight forwarder) or the freoght forwarder may agreed to collect the goods from your premises. For small, non-containerised cargoes, they will probably consolidate your goods with others into a single container (the freight forwarder will probably do this themselves). If are using palletised cargo, then might deliver to the freight forwarder or to the quay side or have them collect it from you.
The freight forwarder will also prepare the customs bill of entry export document and all appropriate transport documents. Goods moving by seafreight incur obligatory cargo dues payable to Portnet and the freight forwarder will probably arrange for these to be paid (and will bill you accordingly).
Once the goods have been loaded onto your mode of transport, the transporter will issue one of the following:
- The shipping line issues a full set of bills of lading, comprising three originals and six non-negotiable copies
- An airline will issue you with an air waybill
- Transnet will issue you with a freight transit order
- A road carrier/hauler will issue you with a road consignment note
At this point, the transport (ship, aircraft, truck, railway truck) departs.
The time has come for you to prepare the negotiable documents that you will use to present to the bank to facilitate payment and the non-negotiable dcouments that you will send to the importer to allow him/her to take receipt of the goods and to clear them through Customs. The documents will be similar in nature; negotiable documents are marked as such and can be used to receive payment, while non-negotable documents (marked as such) cannot.
- You should now fax (or e-mail) a non-negotiable set of documents to the importer as soon as possible., This (a) informs the importer that shipment has taken place, and (b) enables him/her to make the necessary arrangments to take receipt of the goods and to clear them through customs. Some countries allow pre-clearing to take place and the sooner the importer has the documents in hand, the sooner he/she can get his/her affairs in order. You need to move especially quickly with air cargos (and even road cargoes going to nearby countries), as they could arrive the very next day (and occasionally even the same day). An importer will become very frustrated if the cargoes have arrived and you have not yet supplied the documents required to clear the goods through customs.
- The negotable set of documents you take to the corresponding bank in South Africa to obtain payment. The bank will scrutinise your documents very carefully for any discrepancies from what is stated in the L/C. If any discrepancies are found, the bank will inform you of these discrpancies and you will be required to make the necessary changes to ensure that dcouments are correct. Remember that this all takes time and by ensuring that the documents are correct, you speed up matters considerably resulting in quicker payment for your firm! If payment is against presentation of documents, then the bank will pay you immediately (transferring the payment to your local bank). If payment is at sight of documentation, then the South African corresponding bank will forward the negotiable documents to the issuing bank, who will require the importer to sign a bill of exchange as acknowledgement of debt.
The importer's corresponding bank in South Africa then forwards the negotiable documents to the issuing bank overseas. The issuing bank will require the importer to make payment and once this is done they release the documents to the importer. Recall that the issuing bank may not necessarily be the importer's own bank (referred to as the remitting bank). Thus the importer may need to arrange for the transfer of monies from his own bank (the remitting bank) to the bank he used to facility payment of this order (the issuing bank). The importer then uses the documents to clear the goods through Customs. Depending on the terms of sale, customs clearance, the payment of duties and the delivery of the goods to the importer's designated premises may be the responsibility of either the importer or the exporter (although it is more common for the importer to take responsibility of this task).
The issuing bank, having received payment from the importer transfer this money to the corresponding banks via SWIFT, T/T, bill of exchange of bank cheque. The local corresponding bank will notify the you that the funds have arrived and you would then indicate into which account these funds need to be paid (normally your firm's business account which may be held at the same bank or maybe a different bank).
It is now up to you to pay your agents any commissions that may be due to him/her.
The importer will normally provide you with proof of delivery after receipt after the goods have been received at the designated place of delivery.