First-Time Importer- How not to lose money
- April 9, 2015
- Posted by: Trade Logistics
- Category: All, Import
There is nothing worse than being blind-sided by extra costs that you haven’t accounted for, especially after you have jumped through administrative hoops to get your first shipment across borders. These unexpected surprises can instantly turn an eager optimist into a discouraged pessimist and may impact your first experience in trade negatively. To keep you from sinking into a financial pit of despair, we’ve prepared a few questions you need to ask to avoid unnecessary financial mistakes.
1). Can you afford to finance the costs of importing?
More often than not, importing is cash intensive. It is important to make sure you can afford your first step into the world of trade. High transport costs as well as VAT and duty charges all add to the overall costs of imports. It is also less expensive to place larger orders less often than smaller orders more often – so import orders are usually large and therefore costly. All these factors need to be taken into consideration. The mode of transport also influences the overall costs of imports – for example sea is less expensive than flight.
Most first-time importers make the mistake of not anticipating extra costs and therefore they are not completely prepared for the financial implications of importing products to South Africa. It will be wise to engage the services of a freight forwarding or customs broker to assist you with understanding the trade terms of an agreement, and to talk to your bank to understand the financial implications of the orders you are thinking of placing.
It will also be sensible to keep the following pitfalls in mind when calculating importing costs:
- Ensure you use the right calculations for VAT or Import duties (For helpful tips in how to calculate it click here)
- Ensure you have cargo insurance (get guidelines on cargo insurance here)
- Ensure that you have the right permits to clear good at customs so that you do not pay storage fees (ask our staff here)
2). Is there a sufficient demand for products so that you can sell it at a profit?
The process of finding the right product to import shouldn’t be skimped over. As a potential importer you need to establish whether there is a sustainable demand for a product, whether you can import it legally into South Africa, and whether you can make a decent profit from selling it or by using it in a manufacturing process to increase margins. For more information on how to establish whether a product is profitable read this post.
You also need to take in consideration the amount of money you are going to spend to source the right product. Most experts recommend travelling abroad on an import search mission where you can visit manufacturers, attend trade shows and get to know local products. This adds to your expenses. Alternatively you can make the use of a seasoned sourcing advisor that will help you find the right product, at the right quality from companies that you can trust. Their years of experience and thousands of international contacts often means that they can provide you with a better product than what you can source on your own. To speak to a sourcing consultant contact us here.
3). Are you considering the fluctuations in exchange rates?
Exchange rate fluctuations are another potential risk that you could be exposed to as an importer. You’re probably buying goods priced in a foreign currency, which means exchange rate fluctuation can affect the final amount you’ll end up paying in a foreign currency. The rate could move in your favour or against you. There are a few ways you can deal with this:
- Transfer the risk to the supplier by asking them to quote in South African Rand
- Purchase forward cover to protect you from fluctuations.
- Add an exchange rate risk to your margins and carry the risk yourself.