An obvious question arises is: why is documentation needed in export business? Answer to this question lies in the nature of the business relations between the exporter and the importer operating from two countries. One knows, unlike the domestic business, the commercial practices and legal systems are different in the two countries the exporter and importer are operating from.
Therefore, in order to protect the respective interests of the exporter and the importer involved in export business, certain documentary formalities become essential. Such documentation facilitates the smooth flow of goods and payments thereof across national frontiers.
Export documents based on the functions performed by them are broadly classified into four types:
Let us now discuss the specific documents and functions performed by them under each category.
1. Commercial Invoice:
This is the first basic and the only complete document in an export transaction. It is, in fact, a document of contents containing information about goods. Harmonized System Nomenclature (HSN), price charged, the terms of shipment and marks and numbers on the packages containing the merchandise.
The exporter needs this document for other purposes also such as:
(i) Obtaining export inspection certificate
(ii) Getting excise clearance
(iii) Getting customs clearance and
(iv) Securing such incentives as cash compensatory support (CCS) and import license.
This document is prepared at both the pre-shipment and post-shipment stages.
Besides commercial invoice, there is a proforma invoice also. It is a temporary commercial invoice which is sent by the exporter to the importer. It covers contemplated shipment which may or may not be made in future.
The importer requires this document for obtaining an import license and opening a letter of credit in favour of the exporter. With such obvious importance of proforma invoice, the exporter should cultivate a habit of sending proforma invoice to the importer, even if the same is not demanded.
2. Bill of Lading:
Bill of lading (B/L) is a document which is issued by the shipping company acknowledging that the goods mentioned therein are either being shipped or have been shipped. This is also an undertaking that the goods in like order and condition as received will be delivered to the consignee, provided that the freight specified therein has been duly paid.
Bill of lading serves three distinct functions:
(i) It is an evidence of the contract of affreightment (transport).
(ii) It is a receipt given by the shipping company for cargo received by it.
(iii) It is a document of title to the goods shipped.
The bill of lading gives the details about the exporter, carrying vessel, goods shipped, port of shipment, destination, consignee and the party to be notified on arrival of the goods at destination. Bill of ladings is made the sets.
3. Airway Bill:
In air carriage, the transport document is known as the airway bill. This document performs three functions of a forwarding note for the goods, receipt for the goods tendered, and authority to obtain delivery of goods. Since it is non-negotiable, so it does not carry the same validity as a bill of lading for sea transport carries.
4. Bill of Exchange (B/E):
Bill of exchange is an instrument or draft used for the payment in international / export business. It is an instrument in writing containing an unconditional order, signed by the marker, directing a certain person to pay a certain sum of money only to or to the order of a person or to the bearer of the instrument. The person to whom the bill of exchange is addressed is to pay either on demand or at a fixed or a determinable future.
There are three parties involved in a bill of exchange:
(i) The Drawer (Exporter):
The person who makes and executes the B/E or say, the person to whom payment is due.
(ii) The Drawee (Importer):
The person on whom the B/E is drawn and who is required to meet the terms of the document.
(iii) The Payee (Exporter or Exporter’s Bank):
The party to receive the payment.
5. Letter of Credit:
It is a written instrument issued by the buyer’s (importer’s) bank, authorising the seller (exporter) to draw in accordance with certain terms and stipulating in a legal form that all such bills (drafts) will be honoured. Letter of credit provides the exporter with more security than open accounts or bills of exchange.
A commercial letter of credit involves the following three parties:
(i) The opener or importer – the buyer who opens the credit
(ii) The issuer – the bank that issues the letter of credit.
(iii) The beneficiary – the seller in whose favour the credit is opened.
Based on differing conditions, letters of credit may be of the following types:
(a) Revocable and Irrevocable:
In case of revocable letter of credit, the buyer or issuer can cancel or change an obligation at any time prior to payment without prior notice to the exporter or seller. When the letter is irrevocable, the buyer cannot cancel or change obligation without the exporter’s permission.
(b) Confirmed and Unconfirmed:
In case of confirmed letter of credit, the payment is guaranteed by the issuing bank. When the letter is unconfirmed, no such guarantee is given by the bank.
(c) With and Without Recourse:
With recourse means if the buyer fails to pay the bank after a specified period, the bank can have recourse on the exporter. There is no such provision in the letter of credit without recourse.
Documents required by importing Countries:
In case of export business, the importing countries need some documents because of the legal necessity. These documents are obtained by the exporter and are sent to the importer.
Some of the well-known documents are as follows:
1. Consular Invoice:
It is usually issued on the specified form by the consulate of the importing country situated in the exporting country. It gives a declaration about the true value of goods shipped. The customs authorities of importing company charge valorem based on the value mentioned on consular invoice.
2. Certificate of Origin:
This certificate is issued by the independent bodies like chamber of commerce or export promotion council in the exporting country. This is a certification that the goods being exported were actually produced in that particular country.
3. GSP Certificate of Origin:
Goods which get the benefit preferential import-duty treatment in countries which implement the Generalised System of Preferences (GSP) should be accompanied by the GSP certificate of origin. This certificate is given on the forms prescribed by the importing countries.
4. Customs Invoices:
It is also made out on a specified form prescribed by the customs authority of the importing country. The details given on the document will enable the customs authority of the importing country to levy and charge import duty.
5. Certified Invoice:
This is the self-certified invoice by the exporter about the origin of the goods.
Original Source: yourarticlelibrary.com
In addition to the US, EU and Australia, this year, Indian mango exporters are eyeing markets in South Korea and Iran. This will be their first attempt at penetrating these mar...
Food Corporation of India, the country's largest stockholder of foodgrains, has chosen mjunction to auction foodgrains for two years beginning April 2017, in a bid to provi...
INDIA’S OPPORTUNITY IN GENERAL India is recognized and accepted as one of the fastest growing Economy in the World. India has lot many opportunities and possibilit...