Export Jargon - An Introduction for Novice Exporters

March 2017 Export Jargon – An Introduction for Novice Exporters

 

 

Export jargon can be mystifying for individuals or businesses that haven’t been involved in international trade before. Two of the biggest mistakes a novice exporter can make are to either assume that exporting is so easy they don’t need any help or advice, or to assume it’s so difficult they would rather not do it. The prominence of unfamiliar words, abbreviations and phrases can add to the confusion, so here we offer a brief guide to some of the most commonly used ones.

The most common jargon refers to one of three activities that are key to exporting and importing, they are moving the goods, getting paid, and documents or other requirements related to the first two.

Movement of Goods

Naturally, this needn’t usually trouble an exporter that is dealing only in services, although the movement of physical goods can often be an unavoidable part of service delivery, so don’t ignore completely.

The most common terminology here is covered under the collective name of Incoterms. This is a set of three digit terms that are internationally recognised and understood, and define the buyer and the seller’s responsibility for payment of segments of freight charges as well as each party’s responsibility for providing documents and other requirements. It also defines the point at which the goods pass ownership from buyer to seller, which is crucial for insurance purposes.

Understanding of Incoterms is really important. Getting this wrong can lead to serious unexpected costs and delays. Strong and Herd run a regular series of training events on Incoterms that are highly recommended for new exporters and importers, or for new staff.

A regular exporter of goods will very likely be looking for the services of a reliable freight forwarder. This is a business that provides export shipment services, and can also offer information and advice on requirements. Exporters will usually develop a close working relationship with one or more freight forwarders, who will get to know your business and products and be able to offer an efficient and hopefully hassle free service.

Documents that are directly related to movement of goods include Bill of Lading (when goods are transported by ship) Air Waybill (when transported by air) and Waybill (when a movement is made by a number of different modes of transport, as is increasingly common.)

Getting Paid

Payments in international trade are subject to a range of risks that don’t usually apply to trade within a country. The exporter needs to know in advance how they plan to manage these risks. Currency Fluctuations is a subject of constant interest to all international traders. Even if trading exclusively in our own currency, our business can be adversely affected by currency movements, and we need to recognise them, understand them, react to them and plan for them accordingly.

When quoting for export business, it is usual to agree the terms of payment. There is a risk to both buyer and seller in the transaction that needs to be bridged. Much business is done on open account terms, usually on payment within a fixed number of days, just as business is typically carried out in business to business transactions within a country. This is a fairly normal way of carrying out regular business for buying and selling goods in developed economies such as Europe and North America. In many other cases, the exporter will need to rely on special facilities such as Letters of Credit (LC), where a bank provides an undertaking to make payment when the specified terms are met. This not only gives some assurance to the seller, but is also essential in some cases to enable the buyer to make the payment available. Managing payment by letter of credit has numerous pitfalls however, and an exporter needs a firm understanding of the details and how to handle the issuing and compliance requirements. Banks report that a large proportion of letters of credit are refused at the first presentation. Strong and Herd offer regular courses on letters of credit for exporters and related financial subjects.

Numerous other terms are commonly used in relation to payments, some of the more commonly known are Cash against Documents (CAD), Cash in Advance and Cash with Order

Export Documents

Depending on the nature of the goods and the countries to which the exporter is selling, there will be numerous documents, both of a legal and commercial nature, which will be regularly required. These include invoices, which usually have to carry specific information not always required on a domestic transaction. Exporters will often have to produce a Consular Invoice, which is issued by an official of the receiving country and confirms essential details such as the value, quantity and nature of the shipment, and is required for the goods to be cleared to enter the receiving country.

A very common requirement, particularly when selling to countries outside of the European Union, will be a Certificate of Origin. This confirms the country where the goods were made, and is usually issued by a local Chamber of Commerce. It is often a requirement of a letter of credit, and also enables the correct rate of duty to be imposed. Very often there are preferential import duty rates in force between countries that are agreed by treaty, and the Certificate of Origin provides acceptable proof that the lower rate is applicable.

When an exporter wants to move goods on a temporary basis to another country, for example if they are demonstrating them to a potential customer, they may need to get hold of an ATA CARNET, which enables to goods to be moved in and out of the country without payment of duty.

This is just a brief summary of some of the most commonly used terms. For businesses that are getting involved in exporting for the first time, Strong and Herd offer regular courses in Export Essentials that give a much more comprehensive understanding. The Strong and Herd website also carries an exhaustive glossary of terms that is an invaluable source of information.  

Article written by Tim Hiscock – Associate of Strong & Herd LLP

 

Contact Strong & Herd
to discuss your requirements
Telephone
0161 499 7000
Fax
0161 499 7100
Strong & Herd LLP, Manchester International Office Centre
Styal Road, Manchester, M22 5WB