India is the 14th largest exporter in the world and is all set to climb up to be among the top 5 by the year 2030, says a recent report by HSBC. With exporters growing consistently in India, every other day, it is essential to understand that as an exporter there is a multitude of aspects to consider when dealing with international buyers with the most crucial part being the compliance with the legal norms of the importing as well as their own country. Other than that there are several other details to be contemplated and worked upon so that they do not pose a challenge to the exporter.
The export procedure begins right from when an exporter registers his business to until the delivery of goods to the importer. During this process, an exporter may come across delays in steps of the process, due to negligence or unavoidable reasons. And it is only with due diligence and knowledge of ways to overcome the challenges that an exporter can move ahead with the shipping of the merchandise without many glitches.
Delay in business registration
Before one can begin functioning as an exporter, it is essential they register themselves as a business. Since proprietorship and partnership are classified as unregistered business, and importers prefer dealing with a registered entity, it is recommended that an exporter register them as a private limited company. But registration as a private limited company is not mandatory. To begin exporting one can register their business as proprietorship or partnership also.
After the business registration is complete, i.e., the exporter receives the CIN number it is essential that the exporter applies for a GST registration, PAN and TAN number. The entire registration procedure takes 10 to 15 days, and the cost involved is a minimum of rupees 10,000 and beyond.
There are no application charges for registration of GST, which is mandatory for companies having a turnover of more than 20,00,000 INR a year. In case the exporter fails to obtain GST number, they may be liable to pay 10% of the tax amount as fine or 100% if it was a deliberate evasion.
The exporter may get stuck by unnecessary delays in the business registration. These delays may be because of failure to comply with all the mandatory submission of documents, any incorrect or false declaration in the application form, not providing correct information, any false declaration, or the draft/ fees not coming through.
The exporter can avoid these delays by processing the application form through a qualified CA or registration agent or lawyer by ensuring a crosscheck of all the details before submitting the form and documents.
Delay in IEC (DGFT)
For an exporter to begin, it is paramount that they register themselves with the DGFT, i.e., Director General of Foreign Trade, Ministry of Commerce, Government of India. It is only after the unique ten-digit code issued by the DGFT referred to as an import-export code, that the exporter is considered legible to begin exporting products.
The mandatory documents required to be submitted along with the application form are:
➢ The PAN number of the applicant
➢ Identity proof
➢ Address proof
➢ Photographs of the applicant
➢ Current bank account number
➢A canceled cheque bearing the name of the applicant
On submission, the process takes minimum two to three working days to get processed, and the exporter may receive his IEC number within a week.
The exporter after procuring an IEC number should register with an EPC, i.e., Export Promotion Council to receive export-import benefits or concessions under foreign trade policies. The registration can be done by submitting the following:
➢ IEC certificate
➢ Certificate by a chartered accountant certifying the export turnover of the exporter in the preceding year
➢ Membership fee
➢ List of partners or directors if the exporting concern is registered as a partnership or a private limited company
If there is a delay at the end of the DGFT, the reason may be an error in filling the application form or a document may not be authentic. Sometimes the delay may be because of an error in the draft as application fees.
The exporter would, in this case, be required to rectify the errors and re-submit the application form. Any delay in REPC registration may be because of any incomplete detail or documents and can be rectified by re-filing the details and re-submitting the correct documents to the concerned department.
Delay in financing
The government has simplified export finance and given preference over any other types of finance, owing to the foreign exchange earnings they bring into the country. The institutions that are directly or indirectly involved in financing for exports in India are –
- Export-Import Bank
- Commercial banks, both nationalized and non-nationalized
- Development banks such as IDBI, ICICI
- Small Industries Development Bank of India
- State Finance Corporations
- National Small Industries Corporation
- Export Credit Guarantee Corporation
Finance for exports can be availed in the following five ways:
Pre-shipment export finance
This type of finance is given against a confirmed order from the importer in addition to an anticipatory letter of credit for a period of 180 to 270 days.
Post-shipment export finance
Against the export bill as the bill takes 3 to 6 months to realize. The bank may purchase, discount or collect the bill. This type of finance is given for a period of 180 days.
Export finance against a collection of bills
The financing bank finances exporters against FOB bills of exchange and can get compensation up to 80% of the total amount.
Deferred export finance
The banks finance the exporters for the full amount and keep receiving the part installments from the importer.
Export finance against allowances and subsidies
Exporters are given subsidies by the government to enable them to sell their goods to the importers at lower prices and are given allowances in the form of a duty drawback.
The exporter may encounter delays in the processing of finance due to several reasons such as-The bank is not satisfied with the bona-fides of the transaction
• The bank has doubts regarding the documents and considers this as a suspicious transaction.
• The documents are not in compliance with the registered rules and norms.
• The shipping documents have been delayed submission
• Or any other norms that somehow are not authentic while applying for finance, by the exporter.
The exporter only can handle the delays in finance by being very clear and precise in the documents submitted to the banks. The exporter should patiently meet all the formalities of the banks. Each document should be in accordance.
The delay in the procurement of finance can be solved by contacting the negotiating bank after complying with all the details missed out.
Delay in export documentation
An exporter is liable to meet all the regulatory requirements and documentation process mandatory in the importer’s country as well as their own country to avoid any delay in the export due to document delay.
The important documents necessary during the export procedure include-
➢ Bill of lading, which contains the details of the shipment
➢ Certificate of a manufacturer certifies that the exporter has manufactured the goods
➢ The commercial invoice is the most critical document in the export procedure containing all details from beginning to the end, such as packing details information about the shipment, the marks, and numbers as on the outside of the boxes and the value of the merchandise.
There may be other specific documents to prepare before exporting goods. The main documents along with the additional documents should be completed with the help of a professional to avoid any unnecessary delay and should be authentic and in compliance with the rules laid down in the export norms.
Delay in shipping
Transit time is one of the most critical features in logistics. The delivery of the merchandise at the opportune moment is essential. Out of the several modes of transport, i.e., rail, road, ship, air and multimodal, each mode of transport comes with its own advantages to the transit of goods.
The mode of transport is chosen according to the expected time to reach the destination, geographical distance of the importing country, the value, size, weight, and volume of goods. The delay in shipment may occur due to several reasons such as:
➢ Delay in the movement of the vessels owing to port congestion, bad weather conditions, or changes in the schedule because of the holiday season or any event
➢ Loading of shipment is not in the vessel out for delivery but on another vessel.
➢ Incorrect or negligent documents
➢ Poor coordination of freights
➢ Declarations in the customs are not authentic and may result in the delay of shipment in the customs
➢ Evasion in the export license
Ways to avoid delay in shipments
- Add some time in advance to the expected delivery time as a precaution to unexpected delays
• Evaluate factors regarding the holiday periods and weather conditions at the time of transit and accordingly plan the shipment
• Double-check all the documents before submitting them to avoid any delay owing to incorrect information.
• Appoint efficient freight forwarders and customs agents to take the paperwork and customs clearance through without any hitch.
Delay in receiving payments
The ultimate goal of an exporter is to receive timely payments from the importer, once the deal is complete. It is therefore vital that the payment method should be such that the risk of payment is minimal. Since the realm of risk is not very narrow in the international trade, the exporter cannot be precarious until the payments are secured in his bank account.
The three types of payment methods, most prevalent in the international trade are:
The type of payment system has minimal involvement of the banks. They are only responsible for clearing the amounts. The transfer of related documents is direct between the importer and the exporter.
This is the most secure type of clean payment method. Here the exporter receives the payment as advance by the importer.
Clean payment method is risky. The exporter agrees to deliver goods to the importer prior to the payment without any responsibility of associated risks either.
Here the exporters authorize the banks to release the relevant documents to the importer once their payments have been released. The banks release the shipping and other related documents to the importer.
Documents against Payment D/P
The release of documents only against payment by the importer
Documents against Acceptance D/A
The release of documents against acceptance of a draft
Letter of credit
Here the importer’s bank issues a guarantee to the exporter that he shall receive the payment. Thus, the exporter must meet the terms and conditions laid in the letter of credit.
Sometimes the exporter may face certain delays in payments. It is because of the importer refusing payment owing to any of the following reasons:
➢ Goods or documents are not in compliance with the importer’s request
➢ The importer has delayed or withheld payments purposely with an intention to cheat
➢ Importer going bankrupt
➢ Any other unforeseen delay arising out of political, commercial, or fluctuation in foreign exchange risk.
➢ Lack of coordination between the collecting and the remitting bank.
In case the delay in payment is because of any incorrect document then the exporter will have to bear the delay and rectify the mistakes in the documents. If the importer is delaying the payments without any reason, the exporter can protest the bill and take him to court or protest through the bank’s lawyer.
It is essential for an exporter to study the norms of the importing countries. It will avoid unnecessary delays or problems and adapt the business accordingly. But adding a professional to help exporter complete legal details and documents can help them in avoiding these hindrances.