Processing of export order on 4 09 12

processing of an export order

04/09/2012

Dear MIB ians

Lets have some basic talk on Export order and how it can be processed

EXPORT ORDER ! Export order is a document communicating decision of the

importer to purchase certain items from the exporter

Export order represents an offer to sell´ by the exporter and its acceptance´ by the importer.

Exchange of promises by the parties to the agreement.

Every set of promises forms part of consideration for each other.

The export order could be written in a proper legal format or it could as well be evidenced by the exchange of letters between the parties

Do you know what is contract?? if yes, what are the differences

between domestic and international contract?

Can you throw some illustrations ? Lets have look at ‘ Birth and Death

of an contract!!!

What is export order???

•Is that the origin point of contract?? •What's is your answer??

How to name it !!!!Export order

Export agreement

Export contract

Sales contract

Purchase order

Buying contract

How to secure it ? Exporter locates a trade enquiry

Visits to websites of either party by other party

Participation in trade fairs by either party

Visits to trade fairs by either party

Business promotion visits

Contacts through marketing agents

SECURE……….. Contacts through buying agent in the exporter’s country

Exporter’s retail outlets in a foreign country

Circulation of the trade enquiry by the trade promotion bodies like:

India Trade Promotion Organization

Chambers of Commerce

Export Promotion Councils

Commodity Boards

Pre-purchase order process On receipt of trade enquiry, the exporter sends to importer:

Company profile

Product profile

Promotional literature

Product range

The importer may like to have additional information which will be arranged by the exporter

The exporter will send the quotations for the products specified by the importer.

• Such quotation includes details such as FOB Price, mode of payment, photographs of the items, likely delivery time, technical details of the products.

• Process of negotiation on each of the specifications, terms & conditions

• Exporter sends proforma invoice

• containing all the above details as per the negotiations.

• Once Proforma invoice is approved by both the parties the same will become Purchase Order

• The Export order need not be in the shape of proforma invoice but can be by virtue of letters exchanged.

Terms and conditions of ‘E/O’• The following are the standard clauses of an export order but

may vary based on the requirements

• Description of goods• Quantity• Quality specifications• Unit price: FOB / CIF etc as per

INCOTERMS( Updated)• Payment terms :• Sight Payment• Acceptance & Payment• Differed Payment• Letter of Credit• Advance Payment

Mode of shipment: Air / Sea / Road / PostPort of shipment (discharge)Port of delivery (destination)Type of shipment: Direct / Trans-shipmentLast date for shipmentPartial shipments permitted / not permittedDelivery termsShipping MarksInsurance: By exporter / importer Insurance clauses to be covered

Packing, labeling requirementsPrep-shipment inspectionCost escalation clausesForce Majeure clauses: Clause providing for

excuse of non- performance due to acts of God

Arbitration clauseFines / PenaltiesJurisdiction clause : Applicability of LawDocuments required

Arrange for license / quotao In case of restricted items exporter has to obtain the license

from the competent licensing authority

o Certain conditions are to be complied with by the exporter before shipment in case of certain items which are included in Appendix I to Schedule 2 (Export Policy) as given in ITC(HS) Classification of Import-Export Items.

o Any lapse on the part of exporter either will delay in shipment which may not be acceptable to importer or may not export at all.

o Application for export license should be submitted to DGFT in the prescribed form as given in the Hand book of Procedures Vol .I

Team to execute E/ O’ Production

Procurement

Finance

Shipping

Quality control

Inspection

How about logistics ???Terms of supply Financial strength

Technical capabilityManagementR & D facilityPlanning for import of input materialSources of import materialImports restrictions if any>>>

Procurement of input material

• Locating sources of input materialDomesticInternational/ imported. • Selection of the supplier • Reliability• Production capacity of the supplier• Reputation of the supplier

Developing logistics to the export order Determination of the materials / input material

requiredMaking arrangement for the procurement of input

materialArrangement for Pre-shipment finance Labeling, Packaging and marking of the input materialArranging for pre-shipment inspection of input

materialComplying with statutory pre-shipment formalitiesAppointing the clearing and forwarding agentsPreparing Pre-shipment documentsCompliance with exchange control mechanism

Anything else ????? Commercial invoiceConsular Invoice / Visaed invoice / Customs

invoiceBill of lading / Airway bill / Postal receipt / Courier

receiptCertificate of origin / GSP certificatePacking listInsurance Policy / Insurance Cover notePre-shipment inspection certificate Number of

copies in addition to Original or otherwise are to be indicated. Terms / documents are to be specific and vague terms should be avoided

Follow up with the supplier / Manufacturer of input material

Reservation of shipping spaceProductionShipment of goodsPost shipment finance ..

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NEGOTIATION OF SHIPPING NEGOTIATION OF SHIPPING DOCUMENTSDOCUMENTS

Instructions for Opening a Letter of Credit Examination of a Letter of Credit Common Discrepancies Negotiation with Discrepancies Documents for Negotiation Presentation of Documents

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NegotiationNegotiat ion

Negotiation means the purchase by the nominated (negotiating) bank of drafts and shipping documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary

An exporter presents a draft (a bill of exchange) and shipping documents specified in the letter of credit to a nominated bank or any bank if there is no nominated bank, which becomes a negotiating bank, to get paid.

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Instructions for Opening a Letter Instructions for Opening a Letter of Creditof Credit

Items usually included in the instructions to open an L/C.(1) An Irrevocable letter of credit subject to the UCP of the latest

version; UCP No. 600 (2007 Revision)(2) Whether the L/C is to be confirmed by a U.S. bank or not. (3) The name and address of the beneficiary: in favor of exporter.(4) Whether the L/C is to be transferable or not (5) Terms of payment such as at sight or usance (6) Where negotiation or payment is to be effected

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(7) Whether the payment is to be made in U.S. dollars or other foreign currency

(8) What trade terms are to be used: FOB, CFR or CIF?(9) Coverage of marine insurance: Institute Cargo Clauses (A) (Similar to All Risks), (B) (Similar to WA), (C) (Similar to

FPA), or any special coverage such as a rejection clause(10) Documents to be required for negotiation

Commercial invoice Packing list Marine insurance policy or certificate Ocean bill of lading Other documents specified in the L/C

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(11) Whether partial shipments are allowed or not

(12) Whether transshipments are allowed or prohibited

(13) Presentation period/date: A period of time for presentation of documents after shipment

(14) Ports of loading and unloading

(15) The latest shipment date

(16) The expiry date

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Examination of a Letter of CreditExamination of a Letter of CreditWhen a letter of credit is received, exporter must:(1)Examine the conditions and documents specified in

the L/C and determine whether he can meet them or not.

(2) If there are any conditions he cannot meet, request his buyer to amend the L/C as ap before he starts manufacturing export goods.

(3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft

(4) Hold off shipping the order until he receives an amendments to the L/C as requested.

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Common DiscrepanciesCommon Discrepancies

A discrepancy: any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details.

(1) Draftsa. Draft amount is different from invoice

b. Draft tenor is different from the L/C

c. Wrong drawee

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(2) Commercial invoicesa. Different merchandise description from the L/Cb. Invoices is not issued by the beneficiaryc. Insufficient copies are presentedd. Incorrect accountee's name and address are

statede. Different prices from the L/C f. Terms of trade such as FOB, CFR or CIF different

from the L/C

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(2) Commercial invoices (continued)

g. Marks and numbers of packages are different from all other documents

h. Weight is different from the L/C

i. Different currency from the L/C

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(3) Packing lista. Different description of merchandise from the L/C

b. Different number of unit, net weight and gross weight from the L/C

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Common DiscrepanciesCommon Discrepancies(4) Ocean Bill of Ladinga. Less than a full set of original B/L is presentedb. The B/L not properly endorsedc. The B/L not marked with "On Board“ notation, if

B/L contains the indication “intended vessel” or "Received for shipment"

d. The B/L not properly consigned.e. In the case of CFR or CIF, the term "Freight

Prepaid" is not marked, that is, no indication of freight prepaid by the exporter

f. Merchandise description is different from the L/C

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Common Discrepancies(4) Ocean Bill of Lading (continued)g. Different ports of loading and/or unloading from

the L/C h. Notations on the B/L that the merchandise or

packages are damaged i. The B/L indicates the "On Deck" shipmentj. Stale B/L : Not presented within time limit after

shipment as stipulated in the L/C : within ____ days after date of issuance of bills of lading

k. Late shipment: The bill of lading date marked later than the shipment date specified in the L/C

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(5) Marine Insurance Certificate or Policya. Different coverage from the L/C

b. Insufficient coverage

c. Not the same currency as the L/C

d. Different merchandise description

e. The effective date later than the shipment date

f. Broker's cover note presented instead of insurance certificate or policy

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(6) Other discrepancies

a. Not all documents required in L/C are presented

b. Documents are presented after the expiry date of the L/C

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Negotiation with Negotiat ion with DiscrepanciesDiscrepancies

In case discrepancies are found by negotiating bank, exporter must correct the discrepancies.

If exporter cannot correct them such as the shipping date, then exporter should

(1) request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies

(2) At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit.

(3) Release shipping documents to issuing bank after the L/C is amended. Buyer’s acceptance of discrepancies are not enough. The Letter of Credit must be amended.

(4) Do not send the shipping documents to the issuing bank on a collection basis.

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Documents for NegotiationDocuments for Negotiation

Depend on the stipulation in the letter of credit.

Exporter must present all documents specified in the letter of credit for negotiation.

Any missing document or incorrect document becomes a discrepancy.

Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies.

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Documents for NegotiationDocuments for NegotiationCommon documents used in the international trade

accompanying exporter’s Draft (Bill of Exchange)(1) Commercial Invoice(2) Packing List(3) Ocean Bill of Lading(4) Marine Insurance Certificate(5) Any other documents if required by the L/C

• Certificate of Country Origin• Consular Invoice• Inspection Certificate• Beneficiary's statement

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Presentation of DocumentsPresentation of Documents

Draft and all shipping documents must be presented to a negotiating bank together with the original letter of credit.

Presentation must be made within a specified period of time after shipment in the L/C, but not later than 21 days after shipment

A bank must determine whether or not presentation is a complying presentation in 5 banking days

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If a nominated (negotiating) bank, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honor or negotiate, then it must give a single notice to presenter no later

than the close of the 5th banking days.

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Presentation of DocumentsPresentation of DocumentsThe notice must state

The bank is refusing to honor or negotiate Each discrepancy The bank’s disposal of shipping documents:• The bank is holding documents pending instructions

from the presenter or• The issuing bank is holding documents until it receives

a waiver from the applicant & agrees to accept it or• The bank is returning documents or• The bank is acting according to the previous

instructions from the presenter.

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If a bank does not follow these negotiation and notice provisions,• The bank cannot claim that the documents do not

constitute a complying presentation.• The bank must honor or negotiate.

A document presented but not required by the Credit will be disregarded.

If a Credit contains a condition without stipulating the document to indicate compliance with the condition,• Banks will deem such condition not stated and will

disregard it.