Buying From Overseas Suppliers
Buying From Overseas Suppliers
In this post, we show you how your business can find opportunities on the international stage, together with insights from our panel of successful business owners and leading business experts.
Whether it’s raw materials or finished products, there are many reasons why businesses buy from abroad. These include product availability and cheaper costs, amongst others.
But what should you look out for when importing goods or supplies from overseas?
In this article, we shed light on the topic, with unique insights from our panel of successful business owners and leading subject matter experts. If you're ready to get started, let's jump in.
Know Your Supplier
When buying from overseas suppliers, go in with eyes wide open because it is difficult to resolve problems when you are thousands of miles away.
Mr. Desmond Lim—Co-Founder and Executive Director of DNA Medical Supplies—has plenty of experience in dealing with overseas suppliers. His number one tip is to “Always check the credibility and reliability of the suppliers and products and visit the production site before you confirm your purchase.”
Ms. Kellin Koh, Founder of jewellery chain Gordon Max, echoes the importance of on-site visits, “When we take on a new supplier, we visit them at least once a year to make sure their business is in good standing. Over the years, as we become partners and friends, we reduce the visits to maybe once every three years or so.”
Basics of International Trade
In international trade, there is this intimidating-sounding word “Incoterms” which you must know because it specifies who is responsible for what, and the point where risk transfers from the buyer to seller. You will need to decide on:
- Are you shipping by sea, land or air?
- Who is responsible for arranging carriage and delivering the goods?
- Who applies for the insurance?
- Who handles the export and import clearance and any applicable taxes or duties?
- Who is responsible for the other fees such as terminal handling charges?
Ms. Yap Kwee Hong, Head of Global Trade Finance at OCBC Bank, has advice for first-timers to international trade.
“In international trade, it is not always the lowest quotation that is the best. There could be hidden costs that you may not be familiar with. For example, the lowest quotation may not have factored the additional cost that you will need to incur if it is a requirement by the supplier for collection of the goods directly at his warehouse.”
“In this scenario, the cost of collecting the goods—which includes hiring a logistics company, arranging for insurance and clearing customs duties/tax for export—will drive up your total bill, making the deal less attractive on final analysis. So, always ask clearly what the Incoterms are and have it stated clearly on your purchase agreement so that all costs and risks are understood by both parties.”
"In international trade, it is not always the lowest quotation that is the best. There could be hidden costs that you may not be familiar with. For example, the lowest quotation may not have factored the additional cost that you will need to incur if it is a requirement by the supplier for collection of the goods directly at his warehouse.
— Ms. Yap Kwee Hong / Head of Global Trade Finance at OCBC Bank
Import Procedures to Note
If you are importing goods, you must follow import procedures set by Singapore Customs.
For one, you need to know that imported goods (and soon, services) are subject to GST and/or duty payment. In order to do that, you must apply for Inter-Bank GIRO (IBG) with Singapore Customs.
It will take 3-4 weeks for your application to be processed, so remember to factor this into your plans. In addition, a customs permit is required. Your shipping agent – express couriers the likes of DHL, UPS and FedEx – or customs agent will advise you on the requirements.
After you have figured this out, it’s time to engage your supplier. Before jumping into a purchase, you should check the credibility and reliability of the supplier and products.
Transacting Safely
Shipping insurance will cover you in case your goods get damaged or lost in transit, but how do you reduce the risk of losses in the unfortunate event that you meet a rogue supplier?
There are two ways you can reduce the impact: You can either make staged payments, or use trade tools from your bank.
Kellin of Gordon Max has experience in both. “We have used Letters of Credit (LC) with some suppliers. With others, we make milestone payments. First, we make a small deposit, and then 50% upon shipping, and then the balance upon receiving of goods.”
A LC is a Letter of Credit issued by your bank on your behalf to your supplier as an independent undertaking to pay once the underlying documentary conditions has been complied with.
"We have used Letters of Credit (LC) with some suppliers. With others, we make milestone payments. First, we make a small deposit, and then 50% upon shipping, and then the balance upon receiving of goods.
— Ms. Kellin Koh / Founder and Executive Director of Gordon Max & Co. Pte Ltd
Kwee Hong of OCBC says, “In considering the various payment modes, you will have to evaluate the level of trust you are able to place when dealing with a counterparty that is located overseas. You need to ask yourself if the underlying risks will materially impact your business. If yes, paying a small fee for a LC is money well-spent as you will rely on the bank to act as a financial intermediary to assist you in international trade.”
When it comes to the actual transfer, you can do it in 23 different currencies from the comfort of your office through Velocity, OCBC’s business internet banking platform.
Before You Go
One last tip to share from Francis Chan, Deputy Head (Disputes), Rajah & Tann Legal Basix Practice Group: “It will be significantly easier for you to navigate disputes if you have a properly and clearly drafted agreement which clearly sets out the rights and obligations of each party.”
“Another of your top considerations should be navigating the regulatory framework in the other country. Do your homework on export/import controls before you make major commitments, in case there are regulatory stone walls which hinder you from carrying out your business.”
Disclaimer
You may be directed to third party websites. OCBC Bank shall not be liable for any loss suffered or incurred by any party for accessing such third party websites or in relation to any product and/or service provided by any provider under such third party websites.
Any opinions or views of third parties expressed in this article are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. Before making any decision, please seek independent advice from professional advisors.
No representation or warranty whatsoever in respect of any information provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
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