Commercial merchandise cannot legally enter the United States until the U.S. Customs Service authorizes it. When goods arrive at the border, an entry action must be filed, and cargo may be examined at the request of a customs agent. If entry isn’t made within five days (because of insufficient documentation), customs may store the goods for up to a year at the importer’s expense. If goods remain unclaimed, the Customs Service auctions them off.
To avoid meeting this fate — and to simplify the complex task — most companies use third parties to handle the numerous details involved in importing. Increasingly, these details are automated or electronic.
The most commonly used third parties are:
- Customhouse brokers, who handle documentation but not shipping
- Shippers who consolidate freight from several companies to make full container loads, thereby reducing shipping costs, known in shipping lingo as NVOs (Non-Vessel Operators)
- Freight forwarders, who handle documentation and shipping both domestically and internationally
Duties and Classifications
Customs levies taxes on imported merchandise. The taxes are known as “duties” and are determined primarily by the classification and value of the merchandise. Duties depend on either the value or the quantity of the merchandise. They also depend on the merchandise’s tariff classification, listed among the nearly 17,000 classifications in the Harmonized Tariff Schedule of the United States. You can buy the complete tariff schedule from the U.S. Government Printing Office.
Businesses that import and export goods can benefit from financing through what are known as import and export loans. Such loans use the goods being shipped — or proof of the transaction — as the loan collateral. An import and export loan can help your business improve its cash flow as well as enhance its bargaining power with overseas suppliers.
If you trade on Documentary Credit or Documentary Collection Terms, or purchase goods without the use of trade instruments, you can apply for a loan known as a Loan Against Import (LAI). This loan provides the borrower with financing to pay for the goods being imported. Such prompt payment helps you to maintain good payment terms and enhance your business credit rating. The collateral for the loan are goods themselves, which take time to be shipped to their location and are then held as new inventory before being sold or used.
The term of an LAI loan is essentially the time from receipt of the goods until the time when they are ready to be sold, since the lender owns the goods until the loan is repaid. Trust receipts are released to the borrower, which mean that the goods can be used for manufacturing, but may not be sold while they remain in the possession of the lender.
The second type of import loan, known as a Clean Import Loan, is a loan based solely on the supplier invoice. This type of loan does not require that you pay on Documentary Credit or Documentary Collection Terms.
The benefit of a Clean Import Loan is that it provides a business owner with the money to pay suppliers without having to wait to sell the merchandise first. This can be a huge benefit, because most shippers do not want to wait for your company to sell the goods before they receive payment for them.