What is Export Procedure?
Export is one of the main components of International business and involves the movement of goods and services across the nations and the exchange of foreign currencies between the dealing parties. This makes export a complex process and the exporter is bound to follow the legal, and compulsory formalities imposed by the exporting country. No country in today’s world wants to deliver illegal or bad quality goods and services to other nations, as now international trade is governed under the strict rules of the World Trade Organization. Therefore, a series of strict procedures have to be followed by the exporter before the goods leave the boundaries of the home country.
Steps involved in an Export Transaction
The number and sequence of steps involved in an export process may vary from subject to subject, i.e., the exported goods category. However, the basic steps involved in a typical export transaction are discussed below:
1. Receipt of inquiry and sending quotation:
Like any buyer, an importer inquires from various exporters about the availability of goods, quality, price, terms and conditions of exporting the product. Exporter extends the information being inquired for in the form of quotation, commonly known as Proforma Invoice. The proforma invoice contains all the relevant information, like the price at which goods will be exported, minimum order quantity, quality and size, mode of delivery, mode of payment, etc.
2. Receipt of order or Indent:
Once the importer agrees to the terms and conditions laid down by an exporter, he/she places the order with the exporter of the product. This order is called Indent, which contains detailed information about the goods to be exported, quantity, price to be paid, packaging, and delivery instructions.
3. Assessing the importer’s credit worthiness and securing a guarantee for payments:
After receiving an order, to minimize the risk of non-payment, the exporter inquires about the credit worthiness of the importer. The exporter demands a Letter of credit from the importer for the security of the payment. A letter of credit is a guarantee given by the importer’s bank that in case of non-payment by an importer, the bank shall pay a certain amount of export bill to the exporter’s bank, on the behalf of the importer.
4. Obtaining an export license:
All the export transactions in India are governed by custom law. An exporter once sure about the payment is bound to obtain an export license under this law, before proceeding further. To get the license, an exporter shall:
- Open a bank account in any bank authorized by the Reserve Bank of India.
- Obtain Import-Export Code(IEC) number from the Directorate General Foreign Trade (DGFT) or Regional Import-Export Licensing Authority.
- Get registered with the appropriate export promotion council.
- Get registered with Export Credit and Guarantee Corporation to minimize the risk of non-payment.
Every exporter must get registered with an appropriate export promotion council, such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC). Such registration enables an exporter to avail of various export-related benefits of the government.
5. Obtaining pre-shipment finance:
Once all the above procedures are accomplished, the exporter approaches his/her bank to obtain pre-shipping finance to procure necessary items required for the production of the goods ordered and other related activities like packaging and transportation of goods to the port of shipment, delivery of goods, etc.
6. Production or procurement of goods:
After obtaining the finance from the bank, an exporter starts to procure the goods as per the instruction of the importer. The export firm either produces the goods itself or gets the ready-made goods from the market.
7. Pre-shipment inspection:
The government of India wants an assurance that only A-one quality goods are being exported from India. For this, various Inspection Agencies have been set up under the Export Quality Control and Inspection Act of 1963. After producing or procuring the goods, an exporter requires to obtain a pre-shipment inspection certificate from the concerned authorized Inspection Agency. The inspection certificate ensures the quality of the goods and is one of the important documents required at the time of export.
8. Excise clearance:
Excise Duty is the tariff charged by the government on the material used for manufacturing the goods to be exported under Central Excise Tariff Act. The exporter has to apply to the Excise Commissioner to obtain the excise clearance certificate. However, some goods are exempted from excise duty, and under such circumstances, an exporter either does not make any payment or gets a refund under the duty drawback scheme.
9. Obtaining a certificate of origin:
To avail of the benefits provided by the importing nation, an exporter shall obtain a certificate of origin. The certificate of origin is proof that the goods are actually been produced in the country from where it is being exported.
10. Reservation of shipping space:
The exporting firm approaches the shipping company for reserving shipping space for the goods. The shipping company on acceptance of such application, issue a shipping order to the captain of the ship, instructing him to board the goods after their customs clearance.
11. Packing and forwarding:
Goods are then packed and marked properly with details, like:
- Name and address of an importer.
- Gross and net weight of the goods.
- Port of shipment and destination.
- Country of origin.
- Road or Railway receipt.
12. Insurance of goods:
The exporter obtains an insurance policy for the goods to be exported to avoid transit-related risks. The insurance protects the insurer against any risk of loss or damage to the goods caused due to sea perils at the time of transit.
13. Customs clearance:
The exporter prepares a shipping bill, giving details of the goods, the name and address of the exporter, the name of the loading port, the name of the destination port, and so on. The five copies of the bill, along with the following documents are submitted to the Customs Officer-
- Export Contract or Export Order.
- Letter of Credit.
- Commercial Invoice.
- Certificate of Origin.
- Certificate of Inspection.
- Marine Insurance Policy.
Only after receiving custom clearance from the Custom House, goods are loaded on the ship.
14. Obtaining mates receipt:
Once the goods are loaded on the ship, the captain of the ship issues a mate receipt to the Port Superintendent. On receiving the port dues, Port Superintendent passes on the mate’s receipt to the exporter directly or through the C&F agent. Mate receipt contains information, like the name of the vessel, date of shipment, description of packages, marks and numbers, condition of the cargo at the time of receipt on board the ship, etc.
15. Payment of freight and issuance of bill of lading:
On receiving the mate receipt, the shipping company calculates the freight charges for the concerned goods. After receiving the charges, the bill of lading is issued by the shipping company as proof of accepting, and delivering the goods to their destination.
16. Preparation of invoice:
After the goods are set for transmission, an exporter issue an invoice stating the number of goods and amount to be cleared by an importer. Also, the C&F agent has to get the invoice duly attested by the customs.
17. Securing payment:
Once the shipment is done and goods have reached the destination port, an importer needs the following documents to claim his title on goods:
- Verified copy of the invoice.
- Invoice of lading.
- Packing list.
- Insurance policy.
- Certificate of origin.
- Letter of credit.
These documents are passed on to an importer, by an exporter’s bank after acceptance of a bill of exchange. The importer releases payment after the maturity of the bill of exchange. However, an exporter can get the payment immediately by submitting a letter of indemnity.
Documents required in an export transaction
1. Documents related to goods
- Export Invoice: An export invoice is a bill prepared by the seller giving information about the quantity of bill, the number of packages, the amount of bill, the name of the destination port, terms of delivery, etc.
- Packing list: The packing list states the number of packs and the nature of goods contained within the packages.
- Certificate of origin: A certificate of origin specifies the name of the country in which goods are being produced. It helps the exporter to avail of the benefits given by the importer country to an exporter of some specific countries.
- Certificate of inspection: A certificate of inspection acts as a guarantee that goods to be exported are of good quality. Such a certificate is issued by government authorized agencies, such as the Export Inspection Council of India (EICI).
2. Documents related to shipment
- Mate’s receipt: A Mate’s receipt is issued by the captain of the ship to the Port Superintendent after the goods are loaded on the ship. Port Superintendent, on receipt of port charges, passes on the receipt to the exporter or the C&F agent. The mate’s receipt is important for computing freight charges.
- Shipping Bill: A shipping bill is issued by an export firm that gives details of the goods, the name and address of the exporter, the name of the loading port, the name of the destination, and so on. The shipping bill is the most important document required to obtain customs clearance.
- Bill of lading: After the computation of freight charges, the shipping company issues a bill of lading issued as proof of accepting and delivering the goods to their destination. When the transit is done through the airways, Airway Bill is issued instead of the bill of lading.
- Marine insurance policy: Marine insurance policy is a certificate issued by an insurance company as a promise to indemnify any loss of the insured goods in case of transit-related tragedies.
3. Documents related to payment
- Letter of credit: A letter of credit is a guarantee given by the importer’s bank that in case of non-payment by an importer, the bank shall pay a certain amount of export bill to the exporter’s bank on the behalf of the importer.
- Bill of exchange: Bill of exchange is a financial instrument drawn by an exporter in the name of the importer for demanding a payment related to the export consignment. The exporter’s bank transfers the necessary documents to the importer only after acceptance of a bill of exchange.
- Bank certificate of payment: Bank certificate of payment is a certificate to ensure that the important documents related to a particular export consignment have been transferred to the importer and the payment has been received.