Tips and traps when sourcing from overseas suppliers
Sourcing materials from overseas suppliers has never been easier. Integrated global communications and massive improvements to electronic trading platforms have made shopping internationally the first port of call for many UK businesses.
The advantages are there for all to see. Lower manufacturing costs in many regions often means reduced unit prices, not to mention other economic benefits such as the availability of world-class technology, different manufacturing processes and proximity to raw materials.
However, there are also disadvantages, risks, and areas where expert advice is advised to help traders avoid falling foul of the law.
Firstly, it’s never safe to assume that the same rules will apply overseas as in the UK, particularly when dealing with countries outside the European Union (EU). In addition to the obvious issue of language barriers, differences can include areas such as varying import or export restrictions at either end of the transaction, different technical or industrial standards or unstable economic and political climates.
Another key consideration is the cost of getting goods from A to B. Very early in the process, buyers should be asking themselves who is bearing the cost of transporting supplies and the cost implications of any insurance cover that might be required.
Many of the answers to these questions will come from the judicious use of the ‘Incoterms rules’. These internationally agreed templates have become an essential part of the daily language of trade. They should be incorporated in contracts for the sale of goods worldwide and provide an agreed set of regulations and guidance to importers, exporters, lawyers, transporters and insurers.
Where import charges are an issue, Incoterms will determine who pays for them and will put in place a framework to ensure correct tariff codes are used for goods, minimising the risk of potential customs clearance problems.
Another question businesses should be asking themselves when considering a supply agreement is whether they need a quality certificate or a certificate of source/country of origin? These are critical documents and could have significant affect import charges or prohibitions.
Other important considerations revolve around the type of currency the transaction is to be conducted in and the precise details of the payment terms.
Finally, buyers will need to take a view on the risk of their exposure to fraud or other criminal activity. Devising robust governance and quality assurance policy – such as requiring sight of product samples before an order is dispatched – can be the difference between a successful deal and a transaction that may end in litigation.
By far the most effective way to prevent a deal going bad is to have a well-drafted, tightly written supply contract that will establish expectations for responsibilities and indemnification at the outset of any deal, and help to head off any potential disputes.
Everyone should take care to remember when trading on the global stage is that the landscape of overseas supply is one that is in a constant state of flux. Geo-political changes such as Brexit can alter the playing field very quickly and it is vital that firms constantly review the nature of their existing and planned trade relationships.
In a nutshell, digitisation has radically simplified that mechanics of overseas sourcing, but making sure you remain in line with legislative and regulatory changes remains a complex task requiring regular expert input.