IMPORT PROCEDURE

• Preliminaries
• Enquiring and placing the indent
• Obtaining the Foreign Exchange
• Arranging for Payment
• Payment of customs duties and taking the delivery of goods.
 PRELIMINARIES
The importing firm or an individual has to obtain a license and Importer-
Exporter Code (IEC) number from the Controller of Exports and Imports.
The import licenses are usually issued for a period of one year at a time.
 ENQUIRING AND PLACING THE
INDENT
After obtaining the import license, the importer has to enquire about the
goods he would like to import with various exporters. Then he would
identify an exporter and request him to sent the invoice.
After accepting the invoice, the importer sends the indent directly to the
exporters. Otherwise, he may sent the indent through specialized
intermediaries called Indent houses.
 CONTD…
Indent may be open or closed.
• Open indent does not specify the price and other details of the goods and
leaves them to the discretion of the exporter.
• Closed indent specifies the brand, price, number, packing, shipping
mode, insurance, etc.
The indent houses help the importers in negotiating price, discounts, etc.,
as they maintain close links with the foreign firms.
 OBTAINING FOREIGN EXCHANGE:
After sending the indent, the importer has to procure the required foreign
exchange from the Exchange Control Department of the Reserve Bank of
India.
The importer has to produce the import license and the prescribed forms
for securing foreign exchange needed for the payment.
 ARRANGING FOR PAYMENT
The importer has to make necessary arrangements for paying for import
after obtaining the foreign exchange.
The following documents are to be submitted to the exporter:
• Letter of Credit
• Documentary bill
• Bill of Lading
• Bill of exchange/Draft
 LETTER OF CREDIT
Letter of credit is an obligation taken on by a bank to make a payment
once certain criteria are met. Once these terms are completed and
confirmed, the bank will transfer the funds.
This ensure the payment will be made as long as the services are
performed.
 DOCUMENTARY BILL
The importer may request the exporter to forward the documentary bill
through his banker, which would be delivered to him either against
acceptance of the Bill of Exchange or against its payment.
Thus, the documents may be received either through D/A(documents
against acceptance of Bill of Exchange) or D/P (documents against
payment).
 BILL OF LADING
Bill of Lading is an important instrument in financing international trade.
It is a document/receipt issued by a shipping company or its agent
acknowledging the receipt of goods mentioned in the bill for shipment on
board of the vessel.
 BILL OF EXCHANGE OR DRAFT
Bill of Exchange or draft is an order written by an exporter
instructing an importer or his/her agent to pay a specified amount
of money at a specified time.
 PAYMENT OF CUSTOMS DUTY AND
TAKING DELIVERY OF GOODS
The importer has to pay the customs duties. The customs duty may be
based on the weight and size of the goods or based on the value of the
goods.
The customs duty may be paid under the “Permanent Deposit System”
 IMPORT FINANCE
• Letter of credit.
• Documentary Collection
• Cash-in-Advance (Pre-payment).
• Open Account.
• Bill of Lading.
 LETTER OF CREDIT
• Before exporting goods the exporter has to ensure the credit worthiness
of the buyer abroad. For this purpose, he will request the importer to
provide him with a letter of credit from a bank.
• A Letter of Credit is a document which is issued by a bank at the request
of the importer in favor of the exporter.
The Letter of Credit authorizes the bank in the exporting country to accept
Bill of Exchange on the behalf of the importer.
It states the period within which the bill must be presented and the amount
for which the letter of credit is opened.
 DOCUMENTARY COLLECTIONS
• Collection terms offer an important bank payment mechanism that can
serve the needs of both the exporter and importer. Under this arrangement,
the sale transaction is settled by the bank through an exchange of
documents, thus enabling simultaneous payment and transfer of title.
• The importer is not obliged to pay for the goods prior to shipment and
the exporter retains title to the goods until the importer either pays for the
value of the draft upon presentation(sight draft) or accept to pay at later
date and time(term draft). The Principal obligations of the parties to a
documentary collections are arranged under the guidelines of “ uniform
rules for collections (URC)
 CASH-IN-ADVANCE
• Under these terms of purchase, the importer must sent payment to the
supplier prior to shipment of goods.
The importer must trust that the supplier will ship the product on time and
that the goods will be as advertised. Basically, Cash-in-advance terms
place all the risk with the importer/buyer. An importer may find his seller
requiring prepayment in the following circumstances:
The importer has not been long established.
The importer’s credit status is doubtful, unsatisfactory or the country
political and economic risks are very high.
 CONTD…
There are advantages and disadvantages with cash-in-advance terms. This
method of payment involves direct buyer/seller contact without
commercial bank involvement and is there for inexpensive.
However, the buyer faces a very high degree of payment risk . In addition
there is a possibility that an unscrupulous Seller may never deliver the
goods even though the buyer has made full prepayment.
Although prepayment terms eliminates virtually all risk to the seller these
terms can place the seller at a competitive disadvantage.
 OPEN ACCOUNT
• Unsecured Open Account terms allow the importer to make payment at
some specific date in the future and without the buyer issuing any
negotiable instrument evidencing his legal commitment to pay at the
appointed time.
• These terms are most common when the importer/buyer has a strong
credit history and is well-known to the seller.
• This mechanism offers the seller no protection in case of nonpayment.
However, an exporter can structure his open account sale transaction to
minimize the risk of non-payment.
 CONTD…
• There are many advantages and disadvantages of open account terms.
Under an Open Account payment method, title to the goods usually passes
from the seller to the buyer prior to the payment and subject the Seller to
risk of default by the buyer.
• Furthermore, there may be a time delay in payment, depending on how
quickly documents are exchanged between seller and buyer
 BILL OF LADING
• Bill of Lading is an important instrument in financing international trade.
It is a document issued by the shipping company or its agent
acknowledging the receipt of goods mentioned in the bill for shipment on
board of the vessel.
• In this method, the importers bank receive all the documents from the
exporters bank. Then the importers bank provide the document to the
importer. After obtaining all the documents the importer will wait for the
arrival of the ship. On arrival of the ship, the master of the ship gives a
report called ‘Ships Report’ specifying the details of the ship and cargo to
the customs authority.
 CONTD…
• Then the goods are delivered to the customs authorities. The importer
obtains the Endorsement for Delivery on the back of Bill of Lading from
the shipping company by paying the freight, if needed.
Then the importer presents ‘Port Trust Due Receipts’ (two copies) and Bill
of Entry to the Port trust office to obtain clearance regarding dock dues.
 PARTIES TO THE LETTER OF CREDIT
• Applicant
• Issuing Bank(opening bank)
• Beneficiary Bank.
• Advising Bank.
• Confirming Bank.
• Nominated Bank.
• Reimbursing Bank.