Setting up the export order
The international purchase order
The international purchase order is the confirmation you require from the buyer that there is a deal and that you should prepare and ship the goods accordingly. The purchase order will include all details of price, transport and payment agreed between you and the buyer, as well as some of the buyer’s concerns. He may, for example, request that you arrange for a pre-shipment inspection by a nominated third party, and provide him with a clean report of findings. He will also have to include the statutory conditions of his country. For example, his customs department may require a certificate of origin issued by a Chamber of Commerce to be presented for customs clearance.
Important considerations in setting up an export order
When setting up your export order, and before issuing your pro forma invoice, you should consider the following:
Who are the role-players:
- Your freight forwarder
- Your bank
- The buyer
- The buyer’s notifying party
Contact details:
- What are the address and contact details of the buyer?
- What are the address and contact details of his transport agent?
Product:
- What is the international HS code for your product?
- How are the products to be packaged and packed?
- Are there any special handling requirements eg refrigeration?
- What is your lead time requirement from production to shipment?
Pricing:
- Does your EXW price include all the costs such as extra packaging and marking, the cost of credit insurance, the cost of export finance, etc?
- What bank charges are you prepared to accept?
- What currency do you want to be paid in?
- Which Incoterm is to be used?
Transport:
- What are your responsibilities in accordance with the quoted incoterm?
- Which mode and form of transport is to be used, and which port of loading?
- What transport documentation do you expect to use?
Payment:
- What method of payment do you require, eg documentary credit?
- What terms of payment are you prepared to offer, eg Sight or 60 days?
Insurance:
- Do you have to quote marine insurance?
- What type of insurance is required?
Using the pro forma invoice
Once you have addressed the above considerations, you are in a position to complete your pro forma invoice. You must ensure that the information given in the pro forma invoice is complete, clear and concise. As this is the initiating document of the international transaction, information lacking in this document will be absent in later payment and transport arrangements, which could ultimately lead to problems in the processing of the order. For example, if you fail to inform the buyer of your delivery lead times, you may find his latest shipment date too soon for you to manage.
Once the importer receives your pro forma invoice, he will consider it to be your commitment to the transaction. He may need the pro forma invoice to either obtain a foreign exchange allocation (applicable in some countries), for making application for an import permit, or for applying application for the establishment of a documentary credit. In the case of documentary credits, if the credit does not include your conditions, as a result of you not including information in your pro forma invoice, any amendments required by you may have to be for your account. This will also delay the whole process.
Case Study
John Motsa has issued a pro forma invoice and has received an international purchase order fbrom Bill Jones of Health Foods (Pty) Ltd. As John wishes to be paid by documentary credit, which has been agreed to by Bill, John will wait for the documentary credit to be issued before processing the order.
Eventually his bank contacts him, advising him of the credit. He checks the credit according to his checklist and accepts. John has now secured his first export order and begins to go about preparing the shipment, making sure he meets all the terms of the credit. He has taken note of two important dates mentioned in the credit, namely, the latest shipment date required by Bill and the expiry date of the credit. He must make sure that he ships the goods and presents his documents within these dates.
| QUOTATION / PRO FORMA INVOICE | |
| INTERNATIONAL PURCHASE ORDER
|
|
| Documentary credit issued by UK Bank, London, received by ABC Bank, Johannesburg | |
| From: | UK Bank, 12 Harley St, London |
| To: | ABC Bank, Johannesburg |
| Form of Doc cr: | Irrevocable |
| Doc cr no: | AB 784 243/4 |
| Date of issue: | 97/06/14 |
| Expiry on/in: | 97/07/18 South Africa |
| Applicant: | Health Foods (Pty) Ltd, 61 Parsons Green, EC 6 AA, London, United Kingdom |
| Beneficiary: | Best Honey cc, 14 Cedar St, Nelspruit, South Africa |
| Amount: | USD 9800, 00 (Nine Thousand Eight Hundred) |
| Tolerance: | No tolerance permitted |
| Available by: | At sight |
| Part shipments: | Prohibited |
| Transhipments: | Permitted |
| Term of delivery: | CIP Gatwick (1990 Incoterms) |
| Load at: | Johannesburg International |
| Transport to: | Gatwick Airport |
| Latest shipment date: | 97/07/03 |
| Description of goods: | 100 cases Kruger Park Natural Honey as per seller’s pro forma: UK 001 |
| Country of origin: | South Africa |
| Documents required: |
Beneficiary to present the following documents in original:
|
| Presentation of transport documents | Within 2 days after issuance of document |
| Bank charges | All bank charges outside of importer’s country for exporter’s account Advice of drawings. Please advise by SWIFT |
| Documents to be forwarded by two mailings by courier | |
| Reimbursement: | Debit our account with our Johannesburg office |
| Confirmation instruction: | No confirmation required |
| This credit is subject to the UCP 500 1993 revision. | |
| This SWIFT message is the operative instrument and no airmail confirmation will be sent. | |
The documentary credit
If you have requested payment by means of a documentary credit, you should take care not to start processing the order based purely on the receipt of the international purchase order from the buyer. In this case, the documentary credit becomes a bank guaranteed international purchase order, and you should wait until this has been issued and that you are sure you can meet the terms of that credit before processing the order.
