Read time: 9 mins Added: 01/06/2023
Importing from overseas can lower your production costs and increase profit margins, but there are many pros and cons to consider. Before making the leap, take a little time to think through the implications and create a plan of action. This guide looks at the steps you must take to make importing work for you.
There are many benefits to choosing a supplier from overseas:
Lower labour costs or tax advantages may reduce the price of particular products in some countries, even after transport costs.
Higher-quality finished products
Every country has specialist skills and strengths. If you want to sell superior goods, sometimes it’s best to import them.
Some cultures have retained traditional crafts and skills that are hard to replicate.
Original products and raw materials
Originality and authenticity are important in some markets. Also, some raw materials may not be available locally.
Trading internationally could carry more risk than dealing with UK-based companies. It’s harder to check the creditworthiness of a business and the quality of its goods. However, when a country has high volumes of trade with the UK it’s a good sign that other businesses have established relationships there.
If you want to import successfully, you must take the following into account:
When importing from the EU, you must now follow the same rules as for the rest of the world. To check long-term cost-effectiveness, factor in the uncertainty about government trade agreements and import duty changes.
Finding the right supplier
The reliability of your supplier is crucial to your importing success. Find out as much as possible about them through your business contacts and get references from their bank or an international credit reference agency. Better still, visit them in person.
You may be liable for any harm caused to individuals by goods you have imported, so, get insurance to cover this. Also, ensure that any goods you import comply with UK safety standards, such as Kitemarks and CE marks.
Agree on the total cost
Check that the price you’ve agreed includes everything from packaging and insurance to delivery costs and import duties. Carefully check the terms and conditions of your contract to ensure all costs are included.
Any contract should include INCOTERMS (International Commercial Terms). They are an internationally recognised set of trade term definitions developed by the International Chamber of Commerce (ICC). The terms define the trade contract responsibilities and liabilities between a buyer and a seller. For example, they state who is responsible for:
- paying freight costs
- insuring goods in transit
- sorting out any import/export duties.
They are invaluable as, once importer and exporter have agreed on an INCOTERM, they can trade without discussing responsibilities for the costs and risks covered by the term.
Fluctuating exchange rates often result from political instability – whether at home or abroad. They can reduce your profitability by increasing the price of imports, so make sure you calculate their impact on your profit margins and cash flow.
One way to protect yourself is with a forward exchange contract. It's a binding obligation to buy or sell a sum of foreign currency at a pre-agreed rate of exchange by a certain date. You can then budget at a guaranteed rate of exchange.
If you have a current sustainability strategy, be aware that importing goods will increase your carbon emissions. It’s something to bear in mind when dealing with overseas exporters as we head towards the government’s Net Zero target.
The key to successful importing is choosing the right supplier, so always do your research. There are many factors to think about, including practical, political and economic considerations. For more information sources, see our table below.
Confirm whether your supplier is a wholesaler, trading company or manufacturer. Using an intermediary, such as a wholesaler or trading company, will simplify everything, but they could charge a mark-up.
Dealing with the manufacturer directly could be cheaper, but they may be unfamiliar with the paperwork.
Sources of information on suppliers abroad
Your own industry's trade associations
This valuable online resource is free to all UK businesses and can support your international trade ambitions. It provides:
Many organisations looking to export to the UK have representation here. Get details from the relevant foreign Chamber of Commerce, or the commercial department of a foreign embassy or consulate.
Your own industry's trade associations
They will have links to companies in your market and can be a good source for contacts and guidance. They may also warn you about specific market issues.
They sometimes carry details of exporters looking to trade with the UK.
You can search for suppliers online but take care to establish the authenticity of any overseas businesses you identify.
An agent based in the country you want to import from can speed up the process. They can also guide you through the necessary procedures.
If the product you want to import is already available in the UK, check its country of origin markings. Then contact that country's consulate or Chamber of Commerce for details of agents and suppliers.
Your legal adviser or trade association can tell you about typical terms and conditions for your industry.
Remember, a signed purchase order (PO) is a binding legal agreement to buy goods or services. So, check that you are happy with what you’re ordering and clearly set out the quality you expect from your supplier.
Test the water
When dealing with a new supplier, it may be worth ordering a small quantity of goods first. You’ll then learn about their efficiency and reliability, how easy they are to deal with and the quality of their product.
Overcoming language barriers
When ordering from abroad, check that your supplier clearly understands your requirements. Misunderstandings often occur when you don’t speak the same first language. A translator could help with this.
Allow plenty of time
When estimating delivery times for customers, include the extra time your order could take to arrive from overseas. The shipping time could be delayed by goods being cleared through customs. There are two elements to this:
- The time your goods will be on the water (while being shipped).
- How long it will take door to door.
How you choose to pay your suppliers depends on several factors, not least the level of trust between you:
The supplier trusts your ability to pay their invoice within a given time period, such as 30 days. For these transactions, clearing banks offer fast money electronic transfer systems. Alternatively, open a foreign currency account. You can then trade internationally and reduce exposure to exchange rate fluctuations.
Import documentation is sent by the supplier through their bank to your bank which should then notify you when they have everything. The advantage here is that you won't need to pay for the goods until you get the documentation from your bank.
Import licences and quotas
Some countries limit the export of certain goods. Once the quota is reached, you’ll be unable to import any more. The process is regulated by the issue of import and export licences.
Find out if any quotas apply to your goods and services by registering on our International Trade Portal.
The duty you pay on your goods depends on what you import and where from. The rate of duty depends on how the goods are classified. For help with tariff classification, visit HMRCs’ Trade Tariff Tool and Tariff Classification Service. Or register on our International Trade Portal.
Import VAT is levied on the value of the goods at the standard rate, plus any related costs such as duty, freight and insurance. It’s usually paid when the goods enter the UK, but regular importers often open a deferment account. Your goods can then be cleared faster by customs.
Your local HMRC guidance centre can help you with this.
Product safety and marking
Under UK law, all imported products must meet product and safety standards. This may require testing in an accredited laboratory. For more information, contact your local authority's trading standards officers.
Terms of delivery and transport method
Some overseas suppliers’ quotes for their goods will include transport or freight charges. However, you can choose to take responsibility for transport by choosing the carrier, the delivery route and the UK point of entry.
This is insurance against loss or damage to freight while being shipped. If you arrange cargo insurance yourself, you can determine the level and extent of cover. For example, the exporter may only cover the goods until they reach a UK port, whereas you want it right up to the warehouse gates. Also, if there is a problem, you can deal with a UK-based company that speaks your language.