Imports and Exports for Small Business: How to Get Started

Importing versus exporting: what changes for your business

Importers pay suppliers abroad and then clear goods through customs. Exporters ship goods out and manage payment risk from foreign buyers. The cash problem is different for each.

As an importer, you usually pay a deposit up front, pay the balance before or when goods ship, then wait weeks for transit and customs before you can sell. Your money is tied up in inventory on a boat.

As an exporter, you may produce and ship goods and then wait for an overseas customer to pay, often on 30- to 90-day terms. The risk shifts to whether the buyer pays and whether exchange rates move against you.

Many businesses do both. A retailer might import inventory and export a niche product line. Either way, treat trade as a separate operating process with its own budget and checklist, and read how to find suppliers if you are sourcing abroad.

The paperwork and registrations you will deal with

Expect a business tax ID, a customs bond or a licensed filing agent for imports, commercial invoices, packing lists and bills of lading. Requirements vary by product and country.

Start with the basics: a registered business and an EIN. The guide to your business tax ID number explains how to get one. Importers generally need to work with U.S. Customs and Border Protection, and most use a licensed customs filing agent to file entries and handle a bond.

Common documents include:

• Commercial invoice. Describes the goods, value, origin and terms of sale.
• Packing list. Itemizes what is in each package.
• Bill of lading or air waybill. The carrier's receipt and title document.
• Certificates and permits. Some goods, such as food, cosmetics, electronics and plants, face extra agency rules.

Check with the agencies involved, CBP and the Commerce Department among them, for the current rules on your product category.

Duties, shipping terms and your true landed cost

Your landed cost is the full price of a product at your door: goods, freight, insurance, duties, fees and handling. Price from landed cost, never from the supplier quote.

Suppliers quote a unit price, but that is not what the item costs you. Add freight, insurance, import duties (which depend on the product's tariff classification and country of origin), filing agent fees, port charges and delivery to your warehouse. Also add the cost of any damaged or delayed units.

Shipping terms, known as Incoterms, spell out who pays for what and when risk passes. Under some terms the seller handles delivery to a port; under others you take over much earlier. Ask your filing agent or freight forwarder to explain the term on each quote before you accept it.

Here is an illustrative example. A $10 unit with $1.50 freight, $0.80 duty and $0.40 in fees has a landed cost of $12.70. If you sell at $20, the margin is $7.30, not $10. Our guide on calculating cost of goods sold shows how to carry that through your books.

Getting paid, and paying, across borders

Cross-border payments carry timing, fee and currency risk. Choose a payment method that matches how well you know the other party.

With a new overseas supplier, many importers pay a deposit and the balance against shipping documents, which limits the risk of paying for goods that never ship. A letter of credit, arranged through your bank, can protect both sides on larger orders but adds fees and paperwork.

For exports, the safest approach is payment in advance or by letter of credit. Open-account terms win sales but leave you exposed. If a foreign buyer is slow, collecting can be difficult and expensive. Credit insurance and your bank's trade desk are worth asking about.

Watch exchange rates. A contract priced in a foreign currency can lose margin if that currency moves before payment. You can invoice in dollars, or ask your bank about hedging options. The same discipline you use for domestic collecting unpaid invoices applies, just with more lead time.

The cash gap that catches new traders

Trade stretches the time between spending and earning. Map the whole cycle, from deposit to final customer payment, and fund the gap deliberately.

Walk through a single import order on a timeline:

1. Pay a 30 percent deposit when you place the order.
2. Pay the balance when the goods ship.
3. Wait three to six weeks for transit and customs clearance.
4. Pay duties and freight on arrival.
5. Sell the goods over the following weeks, or invoice wholesale customers on 30-day terms.

Cash can be out for three or four months before the money comes back. Multiply that across repeating orders and you need working capital equal to several months of purchases. This is where many profitable trading businesses run short. Read negative cash flow and cash flow forecasting to model it before you commit.

Financing inventory and shipments the right way

The right funding depends on the order size and how fast the goods turn. Match the repayment pattern to when the sales cash arrives.

Consider an illustrative case. An importer buys $50,000 of inventory that should sell for $85,000 over about 90 days. If a funding offer costs $6,000 in total, the net gain is $29,000 before overhead, and the payback is clear. If the goods might sit for six months or sell below cost, the same offer is a poor choice.

ROI Funder offers working capital and a business line of credit that you draw on for each order and repay as goods sell. A revenue-based financing structure rises and falls with sales. We do not place invoice factoring or letters of credit. ROI Funder considers businesses with 500+ FICO, 6+ months in business and $20,000+ monthly revenue, so it fits established traders rather than first-time importers with no revenue history.