Hi Dan
Welcome to the forum - we usually suggest people introduce themselves - first name (which you can add to your profile so it pops up under the line on your postings and everyone can address you properly), but of background, experience level/training kind of thing.

Is this a client? Or is this your own business? First time exporter?

Also - where are the terms of your export? (Incoterms, payment, how you guarantee payment etc). Advance payment clearly a feature - any advance payment guarantees involved/insisted on by the importers? Is the rest on Letter of Credit/open account?

It is commercial practice to send an invoice with the rest of the export documentation as part of the pack and certainly if it is mentioned in a Letter of Credit - if you dont have one that is correct then that can be used as a valid reason for non payment under the Letter of Credit, so great care needs to be taken.

So, using your analogy, you sell a whole action figure - that is what your pricing is based on? So - who makes up the individual parts so that they become a whole unit, once they arrive in said foreign lands? Who bears the cost of that? Ignoring the import issue - if you are selling on the same basis to a uk supplier and selling them the individual parts, same question really including how do you price up what they are buying? Generally a company shipping parts will be able to place a value on each part. Are you as a company involved in teh construction of the final product at your own expense in the end country? if so - then you really need specialist advice to ensure you get your terms of trade right or you will face non payment.

With the export - you have to put a price on the export as a whole as you say for their import duty, plus such values are usually mapped across to the whole export documentation pack.

There are specific things that are required to be included in a commercial invoice. Good sources of information are your freight forwarder, your Bank's international division, HMRC and possibly BIS - although with BIS you might need to get a wee bit stroppy as they are trying to encourage importing rather than exporting.

Here is a starter www.gov.uk/guidance/international-trade-paperwork-the-basics

paracetamol wrote:

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Hey - appreciate the reply and apologies for the lacking intro. I'm new to 'forum-ing' so please bear with me.

As a HK based technical adviser, we collaborate with UK businesses on their export strategy and these accounting technicalities often come to the fore when goods flow from one region to another. 

The scenario presented isn't as technical as your reply in that there are no LoCs, payment guarantees etc. All exports (and imports) have to be accompanied with an invoice and in this scenario, the incoterms are EXW. Therefore, the exporting UK business bears no costs/liabilities once goods are dispatched.  Not strictly true - there is always risk, even with belt and braces L/Cs.  When do they get paid for supplying the goods - not as soon as they made available exworks,so they carry the risk of not being paid and therefore carrying the cost of manufacture 

UK-to-UK (or EU-to-EU) sales of the same product/scenario wouldn't be an issue as an invoice for each consignment is not needed. 

Your reply seems to suggest itemizing components over 5 shipments (as proformas) to obtain the same final value as the originally generated commercial invoice. This won't be possible due to the volume of components. If we change the commodity/goods to e.g. a single car engine being despatched in multiple parts, you'll see how difficult it would be to itemize each nut and bolt. The same analogy applies.   What I dont understand is - if you (or client) are supplying a car engine, why it would be despatched in bits.  If you supply a car engine, its as a whole, so pricing is for the whole engine.  If its supply of parts then pricing is for the parts.  You didnt actually answer my question about who puts those parts together to form the whole, hence perhaps my confusion. but if the goods are available ex works then the UK supplier clearly isnt completing the work on them to provide the finished goods and loses the ability to control those goods.  If you are supplying just the components then it doesnt matter how many components there are - you have to list them on the documentation.          Or have I missed something? 

This has stumped many and I'm still finding a legally sound way of doing this.    

 

Deposit and part shipments/part payments VERY common in the export trade.   If both parties involved in actual physical BUILD of the final product then additional documentation and consideration as to the contract and accounting entries would be required.  But per your scenarios...

Scenario 1.  A missing lid does not generate a need for another invoice.  That is a faulty goods issue.   The item is detailed on the original invoice.  The replacement part is exported with documentation to show it is a replacement part.  Or you could get a credit note representing a portion for the missing lid and then send the invoice of the same amount.  You can actually send faulty parts back and get refunds of duty if required.  (But of course - you can also ship an empty container with a commercial invoice!)

 

Scenario 2

It is NOT an invoice that generates an order, its a purchase order or some other form of contract.   They can issue a proforma invoice - so payment is made before goods are sent.  But once this has been paid or if on an open account basis as you indicated then the commercial invoice must be sent with the shipment.   So yes each invoice has to itemise the goods sent ie the goods being BOUGHT, not the parts of the goods. Going back to eg one - you are buying a whole bottle (ie with a lid).   Back to eg 2 - in this scenario the UK company is selling widgets - not parts of widgets!  So they dont list the parts of the widgets on the invoice, they list 4 widgets each time they ship.  

In any case, the reason for doing this and the mechanics of it very much do matter from an accounting perspective.  It is not just the invoice that generates how something is accounted for in the books!   A single invoice from your pals firm will have implications in their accounts in that the whole invoice will not be treated as a sale at the point the issue is invoiced, because the sale has not yet been made.

Perhaps you should approach BIS or UKTI for some further assistance.

-- Edited by Cheshire on Tuesday 12th of April 2016 02:53:09 PM

Faulty parts are generally kept away from accounting platforms, unless perhaps its period end. 

Proforma invoice is different to commercial invoice. Proforma is to get payment before goods shipped. So there will surely be a proforma for each shipment, with the commercial invoice sent with the goods.

My mistake, I didnt mean 8 widgets, was a typo as I picked up on the number 8 from your'parts' wording. 20 widgets over 5 shipments shouldve read 4 widgets on each invoice. Post edited! Duty is paid upon goods landing so why would they not pay import duty etc 5 times? Im assuming no duty deferement/bonded warehouse situations.

-- Edited by Cheshire on Tuesday 12th of April 2016 02:53:40 PM

No, you have it wrong.

Proforma invoices cannot be sent with the shipment to confirm the duty! Unless the worldwide trading laws changed since I last did one.

5 separate proformas. 5 separate commercial invoices. 5 separate lots of import duty as the goods arrive.

So now you are changing the question.

A question for you - are you really based in Hong Kong? Your profile showed as Lincoln. You then stated you advise UK companies, yet dont seem to know how the import process work but want me to give advice as to what 'platform' you should use' - why would you use one when you arent the exporter and when you are based in HK and Im based in the UK. Sorry but it all seems a wee bit odd.

Might give this post a while for someone else to dip in and respond on the way importing and exporting works as Ive got other stuff to be doing

Me too Johnny!!! The whole blitherin packet!!!!!!!

Thanks for all the replies. 

Yes - we are based in HK advising several UK startups on engineering/manufacturing etc. We help with exports but this particular scenario has us stumped (I'm originally from Lincoln btw). I'm very aware of how the import process works - thank you (importing from Asia since 2002). The platform recommendation is for the startups: something they can use going forward. 

In any case, I wish to thank you all for your input. The advice given isn't entirely correct but perhaps this is down to my not-so-clear explanation of the scenario or your lack of everyday experience with exports outside the EU.

Having spoken to several UK exporters yesterday at the HK electronics fair, it seems there are 2 ways of doing this. Many suggested retaining the 1 commercial invoice for accounting purposes and reconciling it against incoming payments. Later, proformas are manually generated as and when shipments are despatched. These proformas are not filed per se (and have no accounting significance): they do however serve (along with Airway Bills/Bill of Ladings etc.) as evidence of export which HMRC would need in an inspection. The values of these proformas must total and match the 1 true commercial invoice so HMRC have a reference in CHIEF of just how much said VAT/EORI business has exported.

I'll be reporting back once I've nailed the BEST way so others can benefit.

Once again - thank you.

 

Cheshire wrote:

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So now you are changing the question.

A question for you - are you really based in Hong Kong? Your profile showed as Lincoln. You then stated you advise UK companies, yet dont seem to know how the import process work but want me to give advice as to what 'platform' you should use' - why would you use one when you arent the exporter and when you are based in HK and Im based in the UK. Sorry but it all seems a wee bit odd.

Might give this post a while for someone else to dip in and respond on the way importing and exporting works as Ive got other stuff to be doing

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Hi Shaun
You have absolutely no need to apologise, its always good to have a second pair of eyes on such and I was beginning to think I had mis-read part of it.

I had written a response first thing this morning, but then ended up having to go out for an emergency appointment, so when I saw that you had posted I wasnt sure if should post it, but rather than now spend more time re-writing it to fit in with your post, I will just send it in its entirety.

Thanks for your comments though - mucho appreciated.


Hi Dan,

I feel that I need to emphasise that this website is for Bookkeepers and Accountants (as it states in the sites title), so I think I was more than fair answering your question in the first place.

Also please note that I was not giving advice, I only provide advice to my clients with whom I have a signed agreement.

My comments regarding the invoicing process covered the accepted terms of trade on a worldwide basis, although it has been acknowledged that some countries will allow a relaxation of rules ie accepting proforma invoices for the purposes of import duty (#)

I feel that it may be beneficial here to give a little of my own background. I have had a considerable amount of experience with export and import on a worldwide basis. I have 30 years in Corporate Finance dealing with many hundreds of UK companies from SME businesses through to major multi billion throughput corporations. Work which involved development of international trade systems including import and export documentation procedures. I have won awards in the UK banking industry for development of very specialist bespoke documentary processes for use when importing from liquidity challenged countries.

I have also had personal experience of the Asian and European markets from the import/export process through my own separate company. Also, from a bookkeeping perspective I have clients who import/export to/from both the Chinese mainland and via Hong Kong.

In addition I have a family member who has set up one of the first new factories with both import and export capabilities in an emerging market. And just to clarify - this is worldwide, not restricted to the EU.

I think the problem with this post, as can occasionally happen with such things, is that the initial scenario wasnt made clear and then was changing all the time (even the latter scenario you mention is in conflict with the ex works position mentioned earlier), but I think it might perhaps have been better had you mentioned the sector itself - certainly engineering is something Ive had experience of, having 3 family members who are all within different engineering sectors and who have all had their own companies and been involved in
the import/export trade (all far flung destinations), so a real life scenario might've helped. You will note I did try to flush out what would happen with the bucket of bits once they arrived at their final destination, but would suggest I didnt get the responses to aid a full
response.

Now what I must say here, for a wider audience, is that in the import/export world - proforma and commercial invoices have very specific definitions and are used in very specific ways, which are slightly different than if someone is just trading in the UK. Very specific documents may be needed to get the goods through customs and to work out the right duty and tax charges. There may be requirements both for the country the goods are being exported from and the country they are being imported into. Then of course you need to factor in the needs of the supplier and the buyer.

In terms of non EU, worldwide trade, (#) most countries do NOT accept pro forma invoices for the purposes of the import and customs duty process, so a commercial invoice representing the items included in that export MUST accompany the export. (Indeed in a lot of cases there are 3 or 4 copies of the original which go with each export).

In addition to the customs angle, if exporting using eg a Letter of Credit, or certain Documentary Collections processes to secure funds from the buyer, then if you do not include the invoice in the document pack then funds will not flow back to you, due to having to follow the regulations around such documentation, so they have more than one purposes, unlike UK internal invoices. Also worth adding here - if the invoice is for the full amount, then the Letter of Credit is for the exported amount.....again you will have considerable problems in getting paid. So you see there are other factors to take into account.

Btw - I talk about Letters of Credit so that people are aware there is more at stake in completing the processes correctly and should consider their options and their exposure to loss especially when someone suggests they trade on open account as a brand new business
with new business partners in far flung places. (I dont mean you Dan, there are lots of companies all over the world who will try to suggest open account and our clients should be aware that they need to protect themselves. Plus Ive seen the damage created by non payment after goods have been shipped when people have insisted on dealing on open account, with both new and long term trade partners!)

Dan - you mention ''it seems there are 2 ways of doing this. Many suggested retaining the 1 commercial invoice for accounting purposes and reconciling it against incoming payments. Later, proformas are manually generated as and when shipments are despatched. These
proformas are not filed per se (and have no accounting significance): they do however serve (along with Airway Bills/Bill of Ladings etc.) as evidence of export which HMRC would need in an inspection'' You do not mention the other way of doing this, which really would have
been good for the site readers.

I need to add at this juncture that HMRC do not have to have the invoice loaded via NES into CHIEF (as far as Im aware), but yes the invoice needs to be available in the event of an inspection. I wonder how many of these exporters giving this advise have actually undergone
an HMRC inspection and if they were pulled up for such procedures, or indeed understand the accounting concepts behind such transactions. HMRCs own guidance states that if you can only zero -rate the  supply (to HK, or wherever), in your records against an export if you have evidence of export. If you issue one full invoice covering 5 shipments, and then have only shipped the first batch then you do not have teh required evidence of export and HMRC clearly state you MUST amend your VAT records and account for VAT on the taxable proportion of the invoiced amount. 

Please feel free to post your findings, but remember the 'best' way as you see it, is not always the correct way and any suggestions would be better backed up with official guidance.

There is a lot more that I can add, but to anyone reading this - go and ascertain the correct way to do anything via the appropriate channels, and advising clients to do the same - with relevant government, trade bodies, your corporate/commercial banking team,
freight forwarders and case law before you act.

Dan - I can add - Platforms for exporting Accounting - they should speak to their Accountants, as the platform needs to be able to cope with their other day to day demands and needs to be client specific. But generally if currency requirements and stock control are required I
would suggest Sage, but not the cloud version.

I feel the need to also add for anyone reading NB when importing from outside the EU into the UK,  it is NOT the paying of the VAT against the invoice from your freight forwarder etc (nor indeed obviously the supplier), as the goods come into the country that generates the actual claiming back of the VAT. This should only be upon the receipt of the C79 that is supplied by HMRC per HMRC regs.   (This is an example of where the normal rules of commercial invoices can be overriden).  I hope most guys on here will perhaps appreciate, there are the import rules, HMRC rules, the law, import codes and treaties and then Accounting standards to consider each time there is any such trade movement. It is a very complex area and great care must be exercised and appropriate advice gained.

Shamus wrote:

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No problem Joanne,

Sounds as though it should be you working out in Hong Kong!   lol.

Did the bank ever offer to move you anywhere exotic?        I worked in a fair few exotic locations around Manchester. Does that count? 

For all my dropping hints at every review meeting that I could speak, read and write Thai the best I had offers of were Poland and Dusseldorf!... Not exactly the same sort of appeal as the far East :(      I prefer to stick to the exotic places for holidays - there is no way I would do any kind of work, its bad enough here on a gorgeous day, like today!  

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paracetamol wrote:

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The thread has gone off on a tangent  - perhaps it wasn't the best place to post. However, I will be updating it shortly once I have it nailed. you have already said that and I have encouraged it,  although as I say - no-one on here will accept it as gospel unless its backed up appropriately. 

The same question has been asked and posted elsewhere with very conflicting advice. No doubt!  As Shaun said - generally each will come from their own perspective, although your answers on here have come from a few different angles  (and there are CLEARLY LOTS more and too many for this thread), so you have probably had the broadest information yet, from someone who has worked in the three connected sectors, yet you feel the need to gripe about it and tell me Im wrong without backing it up.  

I think it wrong to suggest to anyone reading this site that to deal on an a 40% upfront basis and ex works basis and then suggesting they then bear no further costs/liabilities, is wrong when at the very least there is a contingent risk.

You are right: accountants/book-keepers are mainly interested in the 'accounts' of the company. Shaun did not actually say that. Nor did I.  Note we also look after the VAT and the Tax and trying to make sure our clients do not fall foul of the law and end up with penalties.   We also provide advice about financial risk - and advising clients to export on open account is risky, so if we are not suitably trained to help, we also know when and where to find experts in the field to provide a full holistic approach, rather than just looking at one angle or trying to make something fit, just because they dont like the way it should be done. Of course, clients will then do whatever they want, but must then face the consequences if they are then caught.  Many have been burned!!!

 The day-to-day operations of how to prepare shipments is a different realm altogether of course they are, as with anything our clients do, BUT the two are also inextricably linked, ONE of them as you initially suggested in terms of time of supply (and MANY other factors too) and by the way thats NOT just on the VAT angle! Clients should be guided so that they do not break the law or indeed guidance which might put their businesses in jeopardy and given every opportunity to ensure what they do on a day to day basis involves them in as little risk as possible.

 and so are HMRC's guidelines on what needs to be presented in an inspection (proof of export etc.) Oh come on!!!!! This isnt the only HMRC guideline. I cited one above about not being able to claim NIL VAT on exports if you arent following their rules, there is a whole load of guildelines, rules and actual law surrounding this.  Perhaps you should read the VAT act, thats just for starters, there is a long list.
Anyways, we'll leave it at that for now.

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Edited for spelling typo 

 

 

 

 

-- Edited by Cheshire on Thursday 14th of April 2016 08:08:22 AM

Cheshire wrote:

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Might give this post a while for someone else to dip in and respond on the way importing and exporting works as Ive got other stuff to be doing 

later

What no takers!!!!

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 What I know about import and export can be written on a postage stamp, but I now know where to send a new client if they are in that field 

You know I don't come cheap, but for mates I do special rates - just add a premium of 50% to my normal rates. (Kris would be proud!)

Plus don't forget, if I can't answer it I have three pals more or less on speed dial who still work in trade finance for three of the most major internationally trading banks in the UK, plus a lovely contact at the UKTi, and one at BIS, a credit management/insurance company, a product testing company, contacts at banks in strategic positions worldwide as well as a few other goodies who I could possibly call for a favour.

We're doing something wrong here Shaun.  Joanne's mate rates are +50% yet we buckle at the mention of cakes!!!

Lol Joanne