TALES FROM THE ROAD 25 – GETTING PAID: MAKING CREDIT INSURANCE WORK FOR YOU

          

 ‘Getting paid’ is frequently cited as one of the main challenges for exporting companies. My own experience is that I have had more domestic than international bad payers, better payers from Nigeria and Russia than from Nottingham and Reading. But I guess everyone will have different stories to tell.

In a nutshell, Credit Insurance exists to protect businesses from non-payment of invoices, and can be a useful tool in helping to develop trust relationships with new overseas selling partners. My first experience of the value of credit insurance came when I started work as Export Sales Manager for a textile company. Our biggest ‘export’ customer was a distributor in Ireland who had really enjoyed a life of Reilly for some time, stretching payment terms and exceeding their insured credit limit, and generally giving my predecessor the runaround. Well as a new kid on the block you want to start with a clean slate don’t you? I looked at each export account and quickly realised that our biggest export customer was also our biggest export problem!

So when they wanted their next order to be released I blocked it, refusing to allow any goods to move out of our warehouse in their direction until they had paid out sufficient invoices to bring their account back within the terms of the credit insurance cover that Atradius provided. It can be quite funny, if also a little sad, listening to excuses and promises when somebody knows they’ve been rumbled, and it was all hot air and a waste of telephone time, because in the end the goods were not going anywhere until the money was paid.

Those decisions pretty well finished the relationship with the distributor because they had been biting off more than they could chew with large Irish contracts for far too long, so I had some hairy moments explaining that away while simultaneously spreading the risk across a larger number of more reliable selling partners. However, because I had forced the issue and ensured that payments were back within agreed limits, when the company finally did go bang the following year, Atradius paid out 85% of our exposure – significantly better than the alternative!

Each company has to make its own judgement as to whether or not credit insurance is right for them. Some prefer to self-insure or to provide open account facilities because they know well the reputations of their selling partners. Some might opt for the security of payment by Letter of Credit (LC) for larger orders. Others prefer to be paid in advance because they do not have sufficient trust in their selling partners. Experience teaches us that there is no single right answer, therefore I have tended to apply for credit insurance cover when I have felt it is needed, and also to give new distributors a little flexibility in order to demonstrate payment performance.

I worked very successfully with a Turkish distributor for a number of years. At first, payment terms were payment either in advance or by LC. As the relationship built and strengthened, and because we could not obtain credit insurance at that time, we agreed a £10,000 open account limit so that the distributor could take smaller, regular orders, with all remaining orders being paid for by LC. After three years of successful trading and on time payments, the open account limit was increased and we were able to achieve a small amount of credit insurance cover. The insurers looked at the usual criteria of country risk, company risk, etc., but also at the way the account had been managed between ourselves and the distributor. By building a relationship with the credit insurer we were able to give them the confidence that offering limited cover was worth their risk. 

That illustrates one incidence where initial refusal by the credit insurer did not necessarily reflect on the distributor’s willingness or ability to pay their bills on time. It is very important to note that credit insurance can be refused for a whole variety of reasons, and that decisions can change according to political and economic circumstances, and individual company performance. I was once refused credit insurance on a French distributor who the company had been working with for many years before I joined.

The reason for the refusal was not a reflection of their payment record, but more a question of the total exposure to Atradius of that one distributor. They distributed a wide range of products into the French construction sector, and a number of other companies had beaten me to the draw, each securing credit insurance on their business with them. So the insurance company looked at the collective risk of all those policies, and took the decision that they were already risking enough!

Why did I suddenly apply for credit insurance cover on a distributor who had been working with my company for some time? Well it is quite simple. A distributor whose track record was with regular smaller orders suddenly won a much larger order, and it was necessary to ensure that the company had the ability to pay. My choice became a simple commercial one, whether to accept the order or risk losing prestigious business with Societe Generale in the Trocadero Building in Paris. So we agreed stage payments that helped to minimise the risk of non-payment, with the amount of the first payment being covered by a Bill of Exchange, and covering our manufacturing costs.

So what are the lessons learned:

•  Don’t take a refusal of credit insurance as necessarily a negative thing
• Be prepared to use a variety of methods of securing international payments
• Manage your accounts within agreed insurance limits

TALES FROM THE ROAD 24 – TRICKS OF THE TRADE

I’d been with our distributor in Moscow for several days. There were four reasons for my visit: first so that they could learn more about our products, second so I could learn more about how they operated as a company, third so that my colleague and I could make a presentation to Russian architects at the British Embassy, and fourth to identify ways in which my presence would help them to sell more of my product. The company had offices in a number of Russian cities, from St. Petersburg to Tomsk, and then south to Krasnodar on the Black Sea and into Ukraine, and occasionally several of their regional staff would fly into Moscow for management meetings and company presentations. These were useful gatherings that really helped in putting across the key selling points of the products that they were distributing for us.

I was driven from the airport straight to a meeting with one of their major clients. On arrival we sat in a waiting room with a number of competitive companies, all of us hoping to win the right to supply flooring products to their new offices. I was armed with my briefcase containing a couple of brochures and some technical leaflets, and my distributor carried just one of our blue carpet tiles. Our three competitors had arrived with trolley loads of samples with which to bamboozle and impress this prestigious customer, so I felt decidedly under-prepared!

However, selling isn’t just about the number and variety of things that you are able to show, it’s about grabbing the customer’s attention and holding it while you convey the reasons why a) they should buy your products, and b) why they should buy from your company. Too many salespeople try and sell everything and anything in their portfolios, but that can often signal lack of confidence to the buyer, who would prefer that the products presented are both fit for purpose, readily available, and offered at a good price. So with my one tile, my file of technical leaflets, and my experience of our range of products, I was able to make a good pitch. It must have been okay because I was invited to meet them again the following day and show them a few more of our samples, and we went on to win some business from them.

The experience showed me that although there was no doubt we were working with the best distributor of commercial interior products in Russia, there were still deficiencies in the way they presented our products. And that led me to wondering what other things were maybe not being said. On my penultimate day with the distributor I asked to see their warehouse on the pretext that I wanted to see the conditions in which our products were stored. When they seemed a little evasive about that my request turned into more of a demand, and by the following morning had metamorphosed into a determination to take a taxi out there if they didn’t take me themselves!

So we arrived at their warehouse en route to the airport, and it was more like a cold storage unit. Absolutely freezing, and not the best conditions in which to hold our pallets of carpet tiles. There were two things that were immediately obvious on entering the building. The first was that our products were lost among multiple pallets of products from a competitor whom we were supposed to have replaced. The second was that some of the pallets that we had supplied had broken, and this had caused damage to some of our products. That was entirely our fault because the pallets were not sturdy enough, and we were able to correct the situation. The distributor went on to sell a lot of carpet tiles for us after that visit, and on later visits it became clear that our products were their product of preference, even though they continued to sell for our competitors.

TRAINING OUR RUSSIAN DISTRIBUTOR IN MANCHESTER 2003

Part of the reason for that success was that we invited ten of their managers over to Manchester for three days of product and sales training, which their MD was delighted to support. Those few days gave us the opportunity to present the technical and aesthetic properties of our products in detail, without interruption, and to demonstrate methods that we employed both in winning specifications for our products in commercial buildings, and in maximising the profitability of each project. We had employed a superb interpreter, thanks to a reference from UK Trade & Investment, and she overheard one of the group saying “we have never been taught to sell like this before”. That team went on to become the company’s most important export distributor in the following year.

So the main messages from this are that you should be prepared both to know as much as possible your distributor’s operations, and to empower them to sell your product to maximum effect. In this case, a little investment went a very long way!

TALES FROM THE ROAD 23: ONE TO ONE MARATHON IN JAKOBSTA

I was approached in January by a not-for-profit organisation in Finland to deliver international trade training services in April to a group of companies from the creative industries sector, most of them young or start-up companies, but also one or two more established businesses. My initial discussions with Christer Sjoholm centred on a two day project, with a presentation on general aspects of international trading on the first morning, followed by a series of one-to-one sessions with interested companies for the remainder of my visit.

Anticipating that we would have anything between six and ten one-to-one meetings, we allowed one hour for each followed by a 15 minute note-taking and comfort break. Each company was required to provide a single page summary of what they wanted to achieve out of the session, and the deadline for those summaries was one week before my visit. As the deadline approached it became clear that we would fill most of the remaining day and a half following the presentation, and by the time the deadline passed, thirteen companies had signed up!

Never afraid of a challenge, I embarked upon what I thought would be a punishing schedule, but the truth is that I was energised by the enthusiasm of each of the companies, their fantastic creations and ideas, their plans, and in some cases their complete lack of a plan! Time just flew by, and I am sure I could have squeezed in a few more one-to-ones had there been more companies to see.  I have worked before with companies from the creative sector, and quickly learned that their passion is in what they create, not in getting their products to market, understanding international business, or even in basic business organisation. 

There was a diverse group of companies: illustrators, graphic designers, textile designers and manufacturers, photographers, writers, a wholesaler, a soft toy manufacturer, an established Finnish fashion brand, and a specialist manufacturer of electric bass guitars. All of them knew their products intimately, and all had great stories to tell about how their product or service was conceived. Like so many smaller businesses, they felt that they were not receiving the professional help they needed to drive their companies forward into international markets.

The real issue is that they were actually more interested in creating products and ideas rather than in developing business. In most cases, they wanted someone else to take the pain and hassle of getting their product to market. In one case, it was suggested directly to me that I would become the Sales Agent for a range of products, to which I suggested directly ‘No’, but it was a good try and it highlighted exactly the deficiency of many similar companies, in Finland, in the UK, worldwide. It’s one thing to create, it’s quite another to sell.

Jakobstad is located in an area of western Finland where for historic and general conquest reasons 90% of the population is Swedish, and the vast majority of them have a very good command of English. There is a strong awareness of international markets and a tradition in the area of selling products overseas. Most of these younger companies are just putting their foot on the first rung of the ladder, and they need the kind of handholding that almost all companies need in their formative years.

I very was surprised that social media has not been embraced in Finland as it has been back here in the UK, especially given the profile of the companies who I was talking to. In isolation individual social media sites are of little worth, but collectively they can act as different shop windows for your products and services. You can use each social media to present your products in a different way, to a different audience, and at a different time. It is all about getting your marketing mix right and about you controlling your online presence rather than it controlling you!

But most of all, why would you not want to use social media to maximum effect when it is largely free? And why would you not want to use social media when you can get your message across several times a day, while spending only a few minutes doing it. Social media is an online trend, and we have seen many of these trend come and go in the short time that the world has had the Internet, so it is important to companies large and small to work with the trends of the day and to anticipate those that are just around the corner. And that was part of my message to the companies in Jakobstad.

I also helped to put them directly in contact with specialists offering a mix of professional international services, from intellectual property rights, currency exchange, customs & excise, to financial and logistics services, and in most cases I was able to suggest key target companies in the UK for their products, and provide guidance in how best to approach the market. So now we await the arrival of some of those companies in London during Design Week in September, to see how they have progressed and what they have learned. And in the meanwhile I will enjoy communication with every one of them, and to do my bit in helping them to realise their ambitions.

JOHN REED, EXPORTAID

Incoterms 2010 – Group C Terms – are they useful?

The C Group has the main heading of ‘Main Carriage Paid’, meaning that the main   carriage is paid by the seller. It is a constant within the Incoterms ® rule system that a place must be named when the term is formalised within the contract of supply between buyer and seller. The place named within the C term will always be a place in the country of destination, hence CIF Bangkok, CPT Sydney and so on. This is because the seller has the responsibility for paying the carriage to the point named. As we will see under ‘key points and responsibilities’ there are common confusions and misconceptions related particularly to the C group of terms which prompted the quote from Professor Ramberg referred to at the beginning of this article. Common pitfalls There are 2 groups of C terms . One is intended for use only when the goods are carried by sea (CFR and CIF). The other group (CPT and CIP) can be used for any mode of transport, including sea and multimodal transport. The sea freight terms have the ships rail as a critical point whereas the multimodal terms have delivery attached to putting the goods into the first carrier’s hands. A common pitfall is in not understanding the significant difference between the 2 groups. Without doubt, however, the C group causes considerable confusion in that unlike the other groups E, F,and D there are two critical points instead of one contained within the term. Risk passes from seller to the buyer in the country of departure but freight is paid and arranged by the seller to a point named in the country of destination. The fact that only one place is named in expressing the term, sellers and buyers fall into the trap of regarding that as the only significant point. As if these traps were not enough there is an additional pitfall in connection with insurance, two of the four C terms (CIF CIP) require the seller to take out insurance in the name of the buyer even though risk passes from seller to buyer in the country of departure. Key points and responsibilities under C group terms 1. The seller must contract for carriage to the destination specified in the term agreed in the contract of supply. This applies in each of the 4 group C terms. It is important, however, for the seller to note that two of the terms are intended for sea freight shipment only, these are CIF and CFR. With the sea freight terms the ship’s rail plays a key part as the point at which risk passes from seller to buyer. Real life example: Company H in the UK concluded an order for a New Zealand customer with the Incoterms ® rule CIF Auckland included in the written contract document. When despatch was achieved the goods were sent air freight. Because no ship’s rail was crossed risk effectively did not transfer to the buyer. No damage occurred in transit but the buyer hastened to point out to the seller a lack of compliance in the procedure which could have led to dispute. 2 .  Risk passes from seller to buyer in the country of departure either when the goods are in the hands of the first carrier (CPT and CIP) or have crossed the ships rail (CIF CFR) . Effectively the seller has no risk after these points BUT in two of the terms CIF and CIP the seller has the obligation under the term to take out insurance cover in the name of the buyer, this cover is set out in the Incoterms ® rules published by the ICC, it limits the sellers obligation to taking out minimum cover of the Institute of London Underwriters Cargo Clauses or similar. Further cover must be negotiated by the buyer and seller to cover risks additional  to the minimum referred to. Jan Ramberg has the opinion that this minimum cover comes about because of the sale of goods in transit (as in commodity trading) how, though, he asks, is the seller to know at the outset what the insurance requirements of the buyer are?  He cannot.  Therefore if the buyer requires additional cover it should make it known at the outset. Real life example:  UK buyer agreed the term CIF Felixstowe (Incoterms ® 2010) but realised that they had not understood the extent (or lack of) of insurance cover until the goods arrived from Russia in a damaged state due to ‘civil commotion’ which was not covered by the buyers insurance requirement. It then came to light that the buyer had an insurance policy for goods in transit which covered the cost, the question they were then forced to ask themselves  was “why are buying under CIF when we already are covering the risk with our own insurance ?’ Real Life example:  UK seller quoted CFR and CIF on various export quotations but did not always adhere to the requirement to ship by sea freight, this meant that they were not always able to provide a bill of lading to the buyer. The buyer in one case was not impressed by the sellers’ lack of competence or understanding which turned out to be detrimental to the relationship. Essential differences between the 4 C terms The broad characteristics of each of the 4 groups contained within the new  (2010) set of Incoterms ® rules apply to the terms contained within the particular group, e.g. under the C group terms the main carriage costs must be paid by the seller and risk will pass in the country of departure these are constants. The differences in the 4 terms are significant. Two apply to sea freight and two are multimodal. Two have obligations on the seller to insure the goods. One by one we look at the differences. CFR (Cost & Freight) Main responsibilities of the seller are: •     to contract for carriage •     to deliver the goods on board the vessel with the main carriage paid to the named point in the country of destination •     provide a clean transport document (bill of lading or sea waybill) •     arrange export clearance •     pay unloading costs if for their account under the contract of carriage Remember that, as with FOB, the ship’s rail is no longer the point at which risk passes from seller to buyer as under the 2010 set this has changed to loaded at port of export but this still means that only conventional sea freight should be used under this term. CIF (Cost, Insurance and Freight ) Main responsibilities of the seller are: •     To contract for carriage and insurance (as defined by the ICC rules) •     Deliver the goods on board •     Provide a clean transport document and a cargo insurance policy or certificate •     arrange export clearance •     pay unloading costs if required under the contract of carriage The safe loading on the ship is the key point where risk passes so conventional sea freight is the required mode of transport. CPT (Carriage paid to … named place of destination) Main responsibilities of the seller are: •     To contract for carriage •     Deliver the goods to the (first) carrier •     Provide a usual and ‘clean’ transport document •     Arrange export clearance •     Pay loading costs •     Pay unloading costs if required under the contract of carriage This term applies to any mode of transport. Risk passes when the goods are in the hands of the first carrier CIP  (Carriage & Insurance paid to … named place of destination ) Main responsibilities of the seller are: •     To contract for Carriage & Insurance •     Deliver the goods to the (first) carrier •     Provide a clean and usual transport document and certificate of insurance (or policy) •     Arrange export clearance •     Pay loading costs •     Pay unloading costs if required under the contract of carriage This term applies to any mode of transport.

Remember that the Incoterms ® rules give valuable support to buyers and sellers in establishing responsibilities in international contracts of supply but there are elements of interpretation involved which can sometimes be clarified by reference to the ICC publications referred to in this article.

Incoterms 2010 – Use FCA not FOB terms

Of the three terms contained within the F group two are intended for use only when the goods are carried by sea (but not containerised freight) or inland waterway transport, the other one FCA(Free Carrier … named place) is intended for use by any mode of transport. This differentiation between terms intended for one mode of transport rather than another leads to difficulties when parties confuse matters by using a sea freight term with an instruction to use air freight or deliver to an air freight forwarder at an airport or airport cargo centre. If the shipper air freights a consignment of goods which have been ordered as “Free on Board UK airport” then risk which should pass to the buyer when the goods cross the ships’ rail remains with the seller as there is no ships rail point for the passage of risk from one party to the other. Key points and responsibilities under F group terms. 1    Main carriage (or transportation) is the responsibility of the buyer who must nominate the carrier and be responsible for paying the freight costs from the named point in the country of departure to destination. By mutual agreement the seller can arrange the carrier and transportation but it will be at the buyers cost. Real life example :  In the early stages of supplier/customer relationship it should be made clear who is nominating the carrier and equally important identifying the place where the supplier meets his requirement for delivery under the contract of supply. All 11 Incoterms ® rules must be qualified by stating a specific place. In this example the supplier in northern England merely quoted his Japanese customer “FCA … UK”. This led to confusion as to whether the goods should have been delivered at the suppliers cost to a freight terminal or whether the buyer of the goods was required to collect from the sellers premises. Either of these options is valid under the FCA term but must be agreed at the outset. Vagueness should be avoided in order to prevent argument. 2    Risk (of loss or damage ) transfers from the seller to the buyer when the goods have been delivered to the carrier at the named point. In the 2010 set of Incoterms ® rules published by the International Chamber of Commerce (ICC) the rules relating to loading were made more logical,  ie under “Ex Works” the seller has no responsibility for loading  whereas under FCA (Sellers premises) the seller does have to load. Real life example:  Yorkshire exporter, failing to understand the loading obligation aspect of the FCA term, damaged the goods when unloading them at the nominated point which was a freight forwarders warehouse: by taking on a responsibility which was not incumbent under the term they found themselves liable for the damage incurred.   3    Cost responsibilities pass when the seller has delivered the goods to the carrier at the named place. Essential differences between the three “F” terms The broad characteristics of each of the 4 groups contained within the new 2010 set of Incoterms ® rules apply to the terms contained within it, eg under “F” group terms as described above the main carriage will be paid by the buyer, risk will pass to the buyer at the named point as will costs. This consistency within the group is vital to an understanding of how the Incoterms ® rules system is meant to work. It is, nevertheless, important to see the differences between the terms, with this in mind we will take a brief look at the 3 “F” terms to highlight their essential differences. First of all note that the FAS and FOB terms are intended to be used only for “conventional” sea freight whereas FCA can be used for any mode of transport FCA Free Carrier named place Main points are that this is a multimodal term used for any mode of transport, main freight is paid by the buyer and cost and risk pass at the named point. Export documentation suitable for clearing the goods for export is the responsibility of the seller.  It is important that the buyer gives clear instructions to the seller as to the point of delivery and that both parties agree the separation of any costs that may arise other than those considered normal in such transactions. Real-life example:  The UK seller of goods consigned via air freight FCA (Forwarder’s premises) to an Australian destination. The seller claimed that as they delivered to the forwarders warehouse with the appropriate documentation for customs clearance he should not be charged a ‘handling fee’ by the forwarder. A further question arose with regard to other potential fees for storage and aviation security charges. The dispute was resolved when after considering the wording of Incoterms ® rules it was felt that handling related to customs clearance and should be paid by the seller. Storage in the event of delays in consigning the goods should be to the buyers account as the forwarder is acting for the buyer. Aviation security is arguably a national restriction which should be to the sellers account.   FAS Free alongside ship named port of shipment Main points are that this term must only be used for conventional sea freight or inland waterway modes of transport, main freight is paid by the buyer, cost and risk pass to the buyer when the goods are delivered to the named point. Real- life example:  Seller of the goods delivers to the named port on a Tuesday despite the vessel not loading until the Thursday. On the Wednesday the goods are destroyed in a fire. Who had responsibility for the risk?  The simple fact of the matter was that the seller had not placed the goods alongside the ship as the term dictates, the ship was not there, in the absence of any other considerations such as port practice it had to be that the seller was at risk as delivery had not been achieved in line with the term. The buyer is responsible for giving proper instructions to the seller in respect of delivering the goods to the named point, if the seller is not clearly instructed clarification is required. FOB Free on Board named port of loading Main points are the same as FAS except that delivery takes place and cost and risk pass when the goods cross the ships rail at loading at the port of shipment. FAS and FOB are clearly intended for conventional sea freight (or inland waterway) modes of transport.   Finally the ICC have decided to get rid of the rather dated concept of the ship’s rail point of delivery as the named legal delivery point and where risk passes to the buyer.  These points (after 74 years) are now, under the Incoterms ® 2010 rules when the goods are loaded.  A very high proportion of world freight tonnages is containerised and not handled  by conventional sea freight techniques so other alternatives to the ships rail delivery point are available. Real-life example:  Lancashire seller of textile goods delivered to the port nominated by his USA client but found that the vessel nominated by the buyer was late arriving in port. The seller incurred considerable cost for storage and demurrage charges, the buyer refused to accept these charges and arbitration was called for. It was held that the buyer had failed in his obligation to inform the seller as to the time and place that the vessel was available for loading. The buyer was obliged to pay the additional charges. Those involved in the sale and purchase of goods internationally benefit enormously from having the comfort and protection of Incoterms ® rules, however there is still the need to take account of methods of transport, port practices and the possible advantage for the particular transaction of one Incoterms ® rule over another in terms of security under the contract and ability to meet the obligations of the individual term.

Intrastat Supplementary Declarations – reasonable excuse?

I have always believed that if you had a reasonable excuse for having failed to submit you Intrastat SD on time, then Customs would not penalise you. I’m now told that, except for some very strict ‘events’, there is no such thing as ‘reasonable excuse’.   Is that correct? A.         Yes and no, I’m afraid. The  term 'reasonable excuse' is not defined in law and excuses accepted by HMRC tend to be those which they consider to be reasonable, e.g. mainly those events which are unforeseeable or unusual and beyond your control, although they do say that they will look closely at the circumstances of each case. According to HMRC, a reasonable excuse might involve: a failure in the HMRC computer system, your computer breaks down just before or during the preparation of your online return, a serious illness, disability or serious mental health condition has made you incapable of filing your SD, documents being lost through theft, fire or flood, electrical faults, These are pretty strict examples and could only be invoked if one of the problems listed stopped you from submitting your data. However, each case should be considered on its merits. Other ‘excuses’ have been accepted in the past, such as misleading advice on postal delivery times, or the previous incumbent in the job had failed to let you know that a declaration was due, but these seem a touch tenuous, especially as HMRC emails a reminder about your SD if you’re part of their ‘Alert Service’ . Reasonably enough, HMRC will not accept an excuse as ‘reasonable’ if you haven't made a reasonable effort to submit your data on time. They quote the following as fairly obvious unacceptable examples. You: found the online system too complicated to follow, left everything to your accountant to do and they let you down (NB In this case the law provides specifically that you do not have a reasonable excuse if you relied on someone else to perform any task for you), forgot about the submission deadline, or did not try to re-submit your SD on time once a problem with the IT system was put right .  However, a number of recent First Tier tax tribunals have overturned HMRC’s concept of what constitutes a ‘reasonable excuse’. Excuses tendered for late filing of tax returns, for instance, have been supported by the courts as reasonable, using European Court of Human Rights rulings, supporting the argument that HMRC’s idea of ‘reasonable excuse’ was based on some exceptional circumstance and therefore ‘unreasonable’. In fairness, HMRC do say that if you can show that your conduct was that of a conscientious business person who accepted their compliance obligations, then there may be a reasonable excuse. Remember that HMRC state that genuine mistakes, honesty and acting in good faith are not accepted as reasonable excuses for penalty purposes. But don’t immediately accept HMRC’s decision if you feel you have a valid reason for, say, submitting your SD late. Courts have been showing a trend towards business-friendly rulings, adopting a commercial approach to what is reasonable and this could ‘colour’ HMRC’s opinion. However, remember, ignorance is still no excuse, unless I suppose you can prove that HMRC withheld the knowledge that would have allowed you to comply, but that’s probably unlikely… the small print will find you out! You should make every effort to comply and not rely on the excuse that you had to vacate your premises unexpectedly, due to a plague of locusts… unless of course that’s what happened!

Evidence of Shipment

“Evidence of export consists of two types, official and commercial. For VAT purposes there is no mandatory requirement to retain official evidence of export so equal emphasis should be placed on the acceptance of either official or commercial evidence to substantiate zero-rating. The official and commercial transport evidence must be supported by other supplementary documentation associated with the supply, such as the customer’s order, inter-company correspondence, despatch note, acknowledgement of receipt, evidence of payment, etc.” Full details on the supplementary evidence required are in Notice 703 Export of goods from the United Kingdom. Taken together, the transport and supplementary evidence must show that a transaction has taken place and the goods have actually left the Community. Official evidence is normally: A Goods Departed Message (GDM) where the goods are exported directly out of the UK to a third country destination - see VEXP40400. The GDM is generated by the National Export System (NES) when electronic export declarations are processed. The GDM is only acceptable as export evidence when the Input Customs Status (ICS) code = 60 and the Status of Entry is coded = 8). A certified Export Administrative Document (EAD) also known as the Single Administrative Document (SAD) (Form C88) Copy 3, or NES declaration (as you describe). These must show an official Customs stamp from the office of exit from the EC where the goods exit the EC from another member State. In this case the GDM will show an ICS code = 61 and is not acceptable as official evidence of export unless supported by the stamped copy 3 SAD. Confirmation from the New Community Transit System (NCTS) that the Community/Common Transit (CT) procedure has been discharged. In addition, where an exporter subscribes to the MSS Data to the Trade Service, an MSS report showing ICS code 60 and Status of entry (SOE) code 8 is acceptable official evidence of export. Commercial evidence comprises two types: Primary (eg Master air waybills) Secondary (eg authenticated house air or sea waybills). Along with these transport documents you will also have to provide your own commercial documentation, including payment details, as a basket of evidence.  Ensure the transport documents show clear details of how the goods moved along with the endorsement that they have flown or been shipped.  This is a problem with FPOs because the consignment notes are not acceptable as commercial evidence. HMRC advise that Audit Officers will accept the FPO Global Certificate of Shipment and Air Waybill for VAT zero rating purposes. Also, it is advisable to obtain and retain the Proof of Export (POD) showing the date and signature the goods were received by the customer.

Tariff Classification – Draft Procedure Tips

One of the questions we get asked often by UK companies is:  “how do I put together a written procedure for tariff classification”?  So we drafted out a skeleton around which companies may add their actual procedures.  We thought we’d share it with you, hope the following helps: Introduction: All UK businesses must declare any imports or exports to HM Revenue and Customs (HMRC). This is to ensure that any import VAT, duty, excise or levies due on them under UK and European law are collected. How different goods are classified largely determines what duties and controls apply to them. HMRC uses commodity codes found in the Integrated Tariff of the United Kingdom (the Tariff) to classify individual products. Classification of commodities is necessary for import and export declarations as well as Intrastat returns. Other government departments also rely on Tariff classification for licences and other documents. The Tariff is based on the EU TARIC (Tariff Intégré Communautaire). Member states of the EU hold commodity codes in the TARIC. Commodity codes and other regulations are updated daily, which ensures that importers and exporters can rely on the same standards and treatment throughout the EU. The UK Trade Tariff uses the daily updates of the TARIC directly, so that Tariff users have access to consistent accurate information. The person responsible for tariff classification matters is ******* (include name/position of persons involved) reliant on information provided by purchasing and sales teams as required.  The instructions are issued to all import agents with regard to tariff classification and import entries are received and checked to ensure compliance.  Data is also managed via the HMRC MSS information received. Records of product data and commodity codes are maintained by ******** as well as being listed on the import spreadsheet The tools used when classifying a new product include the HMRC Tariff Book and the www.gov.uk website link.  Full data is obtained from the relevant internal department.  If no obvious commodity code applies then in the first instance the HMRC Tariff Classification helpline is contacted (Tel 01702 366 077).  Depending on this discussion a Binding Tariff Information Ruling (BTI) may be requested.

A BTI is legally binding throughout the European Union (EU) for up to six years after the date of issue and provides the correct commodity code for your goods with a unique reference number.  Once obtained we must enter the BTI reference number in Box 44 of the Single Administration Document (SAD), which must accompany your goods throughout the EU.  BTI’s currently

TALES FROM THE ROAD 18 – GOING THE EXTRA MILE

It is commonly said that you only get a few opportunities to sell, but actually as business people we are constantly selling: selling our products, selling our services, selling the reputations of our companies, and our individual strengths as human beings. On a one to one basis, your customers will either like you or not, you will make a connection or you won’t. But isn’t that life?

There are times when the time you have in which to impress is limited. Well planned exhibitions and trade fairs can, and should be, intense places for your sales staff. So whatever you can do to alleviate the pressure on them by turning the focus on to the product or service you are selling, or by operating good customer receiving services on your stand, will help to maximise sales performance.  Yes, you’ve got it. I am going to give you a few examples!

The first exhibition I did in the carpet industry was at Batimat in Paris in 1997. Six gruelling days of meeting and greeting and selling from 8am till 6pm, preceded by coffee and croissants, and followed by wine and fabulous French food. The company had agreed to exhibit at short notice after gentlemanly pressure from our French distributor, and it was my decision to go or be damned. So I thought going was the better option, and we arrived at the booth to find that the 6m x 3m raised floor surface for our 500mm square carpet tiles was made up entirely of wooden pallets! So I left it to the gentlemanly distributor to sort it out because his business was flooring contracting and installation. Mine was just selling the stuff, and I had only been with the company for two months.

As a result, it won’t surprise you to know that day one of the exhibition was an unmitigated disaster, with tiles coming loose and causing trip hazards, and the whole stand looking generally amateurish. So by lunchtime I decided to phone the boss who was due to arrive a couple of days later. We took the only decision that we could, and insisted that the floor be re-installed. And rather than wait, we had the distributor bring in a fitter to do the work as we continued to exhibit. An accidental stroke of genius. The refit drew a crowd, and we were inundated for the rest of the day. We repeated the refit at points during the exhibition and it helped customers to understand why the way we cut our carpet tiles was so innovative.

That lesson was carried through to subsequent exhibitions, but probably had its most important effect at the Yapi Exhibition in Istanbul in 2000. We had recognised some months previously that the installers used by our excellent Turkish distributors were competent fitters of roll carpets but had limited skills when fitting carpet tiles. I had once been called to a complaint at a new Turkcell building on the outskirts of Istanbul where a 2,000m2 floor area had been fitted with beige carpet tiles. On the back of every single tile is a direction arrow to show which way the tile should be fitted. There was also a full set of instructions on how to fit the tiles, translated into Turkish, in every single box of 20 tiles. So when I walked into the area the problem stuck out like a sore thumb: a single tile had been fitted in the wrong direction. Not my problem!

A few months later we had the chance to train the Turkish fitters by getting them to install a complex floor pattern on our distributor’s stand at the Yapi exhibition. We flew over the best UK carpet tile fitter to train them on how to create complex shapes with carpet tiles, and actually cut the distributor’s logo into the floor. So not only did we have the best looking floor in the exhibition, we had also trained installers to fit to the highest standard. Sadly, I had to have my evening meal each night with said carpet fitter, who lived, breathed, and yes probably ate carpets! For each of those four long evenings, I longed for a conversation about football.

In both of these cases, I was there to sell the product. In both cases the product ended up selling itself. It taught me that at exhibitions, sales people are order closers, and that the whole of your exhibition stand, how it is operated throughout the period of the exhibition, and all of your preparation in attracting customers to visit, act as lead generators. And finally the power of demonstrating a skill, at exhibitions where your customers may largely not speak your language, is simply the best sales aid of all.

History of Customs: The mysterious link to Year 3

Anyone who is interested in the history of the Music Hall may know the catchphrase of an old comic legend “Now here’s a funny thing!” (Max Miller – in case you are wondered).  Well, here is a funny things – most of the anniversaries relating to Customs take place in a year ending with a 3.  Here’s a few – 743 -  The earliest written record of Customs dues chargeable on medieval ships is to be found in a Charter dated 743, granted by Aethelbad, King of Mercia, to the Abbey of Worcester.  This allowed the Abbey the dues of two ships: “Which shall be demanded by the collectors in the hithe of London Town”.  1203 - The centralized English customs system can be traced to the Winchester Assize of 1203, in the reign of King John.    1303 -  The custuma parva was introduced by Edward I in the Carta Mercatoria which placed both trade and customs duties on a firmer footing and involved the levying of the Aliens Customs or butlerage, a tax on wine to be paid only by aliens (anyone who is not a national or citizen of the United Kingdom). 1643 - Excise duties on home produced articles were first imposed to provide money for Cromwell's Parliamentary Army and then continued by King Charles II for ‘royal purposes’. Excise duties are inland duties levied on articles at the time of their manufacture, such as alcoholic drinks and tobacco 1673 -  Charles II established the Board of Customs 1683 -  Charles 11 set up the Board of Excise to run alongside the Board of Customs 1803 – The Customs Act passed this year led to the construction of new customs warehouses in nearly every port around the coast of England.  The Act permitted the placing of all types of goods into a customs controlled warehouse pending payment of duty, not just excisable goods 1823 -  The foundation of the modern whisky industry can be dated from this year when an Act was passed to reduce the small stills in the Highlands and introduce not only an annual licence fee for distillers but also a duty on the alcohol produced according to the proof gallon. 1973 -  Purchase Tax was superseded by Value Added Tax (VAT) in the UK.  And, of course, UK joined the European Community (EEC) 1983 – CEDRIC: Customs & Excise Departmental Research and Information Computer – was set up to store records held by the Investigation Division on the Central Reference Unit (CRU) and the manual Investigation Division Indexes. 1993 – the Customs Union was established, bringing with it harmonized customs duties and Intrastat declarations. 2003 – NES was adopted at all airports in the UK

2013 – well, we’ll have to wait and see but we were originally going to get the introduction of the Modernised Customs Code in July 2013.  This has now been renamed the Union Customs Code but changes will probably miss the “Year 3” connection.

Responsibilities under some Customs Procedure Codes

Along with the cash advantages, some of these codes make the importer legally responsible for controlling, reporting or re-exporting the goods within a set time period.  Poor use of CPCs, or a lack of understanding or control, can leave an importer open to Customs audits and potential penalties for non-compliance.  Most of the responsibilities are easy to undertake and control - the most important thing is to be aware of the responsibilities under the CPC you choose.  These are clearly detailed in Vol. 3 of the Tariff. Following are some examples of the responsibilities that may be incurred with a CPC.  1. You must be authorised by HM Customs before you use it. 2. Proof of export will be required when the goods arrive in the UK to allow the relief from import duty/VAT. 3. The goods must be exported within a set time period. 4. After re-exporting a duty reclaim must be made within a stated time. 5. Quarterly reports must be submitted to HM Customs. 6. Good audit records that permit tracking and tracing of imported items may be required. 7. The end-use of the goods is controlled and they cannot be diverted or scrapped without Customs approval. Where appropriate the format of the seven digit CPC’s link the import and the export of goods, so allowing Customs to see that you have fulfilled your responsibilities.  For example:  • Goods imported to be repaired under a simplified procedure will be entered to CPC 51-00-001. When these goods are re-exported from the EC the CPC used will be 31-51-000 - the middle pair linking the export CPC with the reason for import, i.e. 51.  The use of the correct export CPC cancelled the importer’s responsibilities.  If an incorrect CPC is used at export then the importer will have problems.

An understanding of the Customs Procedure Codes that relate to your particular activities is desirable; that is not to say that your current use of CPC’s is faulty or that your import clearing agent or forwarder is incompetent, but merely to emphasise that responsibility and control should rest ultimately in the importer’s or exporter’s hands.

Part 3 – The Beginnings of the English Customs System

We know that Customs duties have been levied in Britain from at least the 8th Century but in fact they are probably as old as civilization itself.  Though there is no written or physical evidence to support it, England must have operated the Roman system of portoria (see earlier blog ) , for the collection of taxes on imports, exports and goods in transit (tolls) as the country (especially Londinium) was an importance centre of commerce and trade for the Roman Empire.  Excavations in Lower Thames Street, London uncovered the remains of a Roman quay, sadly not finding any evidence as to the possible site of a Roman portoria or Custom House, but the Customs Service has been closely linked with the sea, ships, quays, wharfs, warehouses and, of course, goods for centuries, so who needs evidence? The earliest written record in England of actual Customs dues charged is in a Charter dated 743, granted by Aethelbad, King of Mercia, to the Abbey of Worcester.  It allowed the Abbey the revenue from the dues collected from two ships: “Which shall be demanded by the collectors in the hithe of London Town”.   In 745 a further charter, from the King of Mercia again, granted: “the toll and tribute of one ship which formerly accrued to me by rights” to the Bishop of London. Most ancient customs in England consisted of fees, like these, paid by the merchants for the privilege of using the king's warehouses, weights and measures and the name “customs duty” supposedly came from the fact it was an inheritance of the king by immemorial usage and common law, (ie customary) and not granted through statute; this definitely changed going forward when “government” became involved in customs. It was not nationally organised at this time but ran on separate grants being issued at individual ports. (Further other definitions see blog 1) It was in the year 979 that we find real documentary evidence of systemised import duties in England.  King Etheldred established a system at Belingsgate (Billingsgate), in the port of London, for collecting import duties on ships and merchandise.  The duty was levied at:  ½d on a little ship 1d on a larger ship with sails A ship full of wood, one piece of wood as tax Men of Rouen who shall come with wine or large fish shall give a due of 6s Men from Flanders, Normandy and France shall be free of tax. There were other duties on cloth, cheese, butter and eggs.  Even in these early days, with the various exemptions, the duties were complicated to calculate, collect and administer. After the Norman Conquest a type of excise duty was introduced to take tax advantage of the considerable increase in the import of wine, especially from Gascony.  This duty on the new wine importers was called “prise”, collected in kind by the King’s butler  - mainly to supply the King and his Court with wine.  It didn’t take long for the “prise” to change from casks of wine to money – this fiscal tax was called “butlerage” and it survived until the early Nineteenth Century. To see a centralized, formalised English customs system we need to move forward to the Winchester Assize of 1203-4.  The great administrator and tax enthusiast King John decreed that: “the customary dues at the ports”, ie money/ taxes due, should be accounted directly to the State Treasury, payable to the King personally and not through the local lords and sheriffs.  King John should, therefore, be given the credit for establishing a Customs service on a national scale responsible directly to the Crown.  King John’s other major administrative achievements included the establishment of the Exchequer, the reorganization of the Navy and establishing the foundations for a formal national Archives – oh, and annoying a certain hero/robber called Robin Hood. King John’s decree at Winchester Assize established a duty of one-fifiteenth on all imports and exports (called the “quidecima”), led to the formation of a Customs Service when he employed six or seven 'wise and substantial men, well versed in the law' to account to him for the revenue, established ports where goods could lawfully be imported or exported and set up the first know Custom House in very close proximity to Billingsgate.

The next blog will look at these first Tariff Charges and development of the English Customs Service.