Small business: Anthony O’Brien

Buying goods from overseas can be profitable but there are traps for the unwary

Importing can be a way to grow your small business by enabling you to offer new products or services or reduce your manufacturing costs. However, there is some homework to do before you can start importing exotic Chinese weight-loss teas or T-shirts from Laos.

1Establish compliance

Before researching suppliers, check with the Department of Immigration and Border Protection that the product you want to import can enter Australia. While you’re at it, check for any permits, duties or regulations that may apply to the products you’re looking at.

2Research suppliers

The next step is to find the providers. The Small Business Development Corporation in Western Australia recommends consulting chambers of commerce for referrals. Austrade is focused primarily on exporters but this government agency is worth contacting as it has trade commissions located worldwide that might be able to offer some advice.

Craig Michie, head of trade finance and a director of Scottish Pacific, recommends comparing as many suppliers as possible. “It’s important to understand who you are dealing with,” he says. “Is it a manufacturer or a trading company? Sometimes it can be difficult to tell the difference.” It’s advisable to visit the factories of all the suppliers on your shortlist. “Make sure the factory’s name is consistent with the name of the company that has quoted you,” says Michie. “Some trading companies are here today, gone tomorrow.”

3Get clear quotes

Ensure any quotes are itemised with individual component costs, labour and any other charges. Itemised quotes will make it easier to compare suppliers and to control potential future price increases. For example, if the cost of materials increases by 30%, the vendor could request a 30% price increase. “However, if materials account for 50% of the quote then an increase of just 15% would be justified,” says Michie.

4Minimise deposits

Many overseas suppliers insist on an upfront deposit. “This is different to Australia where paying for products on delivery is the standard,” says Michie. “Yet time and again we see Australian companies pay deposits to overseas suppliers that they might have met just once at a trade fair. If you are going to pay a deposit, make sure the manufacturer is legitimate and that you have seen their factory.”

5Clarify responsibilities

Insist on the appropriate “Incoterm”, advises Michie. An Incoterm determines the tasks, costs and risks for the buyer and seller for the transportation and delivery. Incoterms determine when the importer is responsible for the goods and what insurances are required. For example, let’s assume the transaction has the Incoterm “free on board” or FOB. “If the crane loading the freight drops your container in the water, it’s the supplier’s responsibility,” says Michie. “If it falls onto the ship’s deck, the importer is responsible.”

6Organise insurance

Once the importer knows when they are responsible for the goods (via the Incoterm), it is vital to have cargo insurance. Many importers mistakenly believe the freight forwarder covers the insurance.

“Your policy schedule will outline your level of cargo insurance coverage and it’s imperative that cover commences before the product leaves the place of origin and only concludes after the goods are received,” says Christopher Hogarty, chief underwriting officer at NTI, a specialist insurer. “A marine insurance professional will be able to tailor coverage to the specific needs of your business.”

7Hedge currency risk

US dollars are the key currency for most import transactions with China and the surrounding region, according to Michie. Fluctuations can impact gross profit margins. “This year, for example, the $A/$US exchange rate has ranged between 70¢ and 80¢ US. That’s a 14% swing, and when it’s a negative swing it will gobble up a large chunk of your gross margin.”

To avoid this risk importers can liaise with currency providers to set up forward exchange contracts with a bank or a trade finance specialist such as Scottish Pacific, which can lock in an exchange rate.

8Inspect shipment

It is hard to return your goods once they leave port. Getting a credit or a refund can be just as difficult. Ideally, you should inspect goods on all shipments.

Importers can pay for pre-shipment inspections, which could be as much as $3000, says Michie. “This may not be viable for low-value goods such as garments, so go to the country yourself and look in the container. Add the inspection to a general business trip that might include meeting new suppliers, factory visits and so on.”