Import Department

Import department deals with the imported goods which is necessary to carry on the business of Nishat Textile Mills such as spare parts of machines, chemicals, yarn, cotton, coals and fabric etc. To make imports possible, import department needs to compile all the required documents. First of all we will see that what actually the imports (General) procedure is: When a production department needs something to run the production process without any interruption in production, or may need any other thing such as machinery spare parts, they request the purchase department to import the particular product. Purchase department directly contact the exporter/ seller and make an agreement with a formal conditions, such as what should be the quantity and quality of the goods, what type of transaction that will be (L/C, Advance, Contract or Bill of Entry). After this agreement exporter will provide a Performa Invoice to purchase department containing all necessary information regarding goods which includes name of the exporter, name of the bank, bank account number, swift code number, Performa Invoice number, country name etc. Import department fulfill the requirements of bank (L/C issuing bank) documentatione.g. opening the L/C account, submit the I-form along with other documents and give direction to the bank to inform them when it will receive the original documents from the exporters bank. When bank will receive the documents, it will inform the importer, importer allow the bank to transmit the money to the exporter, while importer will show original documents to
shipping master and release his stock.

Types of Imports:
There are four types through which the goods can be import, which are given below: 1) 2) 3) 4) L/C (Letter of Credit) Advance Payment Bill of Entry Contract

To know the procedure we will take these points one by one and see the difference among them.

Letter of Credit:
Major parties involve in L/C: Applicant/ Importer Beneficiary/ exporter Issuing/ opening bank Advising bank Negotiating bank

Confirming bank Nominated bank Insurance company

1) What is Letter of Credit? (With respect to importer):

Letter of Credit is a document through which two parties can trade internationally. It is safest trade for both importer and exporter because they are not directly dealing with each other but third party is involve that is bank, which made it secure. Letter of credit is of two types, revocable and irrevocable but in a normal course of business the irrevocable letter of credit is using.

Detailed procedure of Letter of Credit:

When importer wants something to import, production department request the purchase department to import the particular product. Purchase department directly contact the exporter/ seller and make an agreement with a formal conditions. Some of these conditions areas follow: Quantity of the goods Quality of the goods Description of the goods Price term

After this agreement exporter will provide a Performa Invoice to purchase department containing all necessary information regarding goods which includes Name of the exporter Name of the bank Bank account number Swift code number Performa Invoice number Country name etc.

Purchase department get an approval from the authorized person and send this Performa Invoice to import department. If the price of imports is 25000 dollars(approximately) will be approved by the authorized person, but if the price is more than 25000 dollars will be approved by the owner of the company. Import department check out the approval on Performa invoice and insured the imported goods as well as prepare the documents to request the bank (L/C issuing bank) to open their L/C account with a particular amount. The documents include: Request letter Performa invoice

Form-I Additional conditions Insurance cover letter

After opening the L/C, bank sends the draft to the import department which is made according to the information given by them, import department will check out the draft that there should not be any mistake and it would be same as they required. If draft contains the correct information will be approved by the import department and refer to send the documents to the advising bank. They give direction to the bank to inform them when it will receive the original documents from the advising/negotiating bank. When bank will receive the original documents, it will give intimation to the import department that it has received the original documents. Bank will insure first that the documents must be according to the L/C requirements otherwise bank will indicate the discrepancy and inform the import department. If importer will not agree to accept these documents then the documents will be sent back to the exporter and ask him to amend the conditions in accordance with L/C, but if these are accepted by the import department then the beneficiary will have to pay the discrepancy charges that are mention in the L/C.As payment is made in other currency, let say dollar, so, import department must convert their money into dollars
(in case they do not have dollar currency), in such a way that the will decide the dollar rate with the bank and bank convert the imported goods amount into dollar currency and transmit it to the advising/ negotiating bank against the original documents, these documents will be sent to the custom department

to release the goods from the port by showing it to the shipping master, and copy of these documents will also send to the account department. After releasing the goods custom department sends the copy of original documents to accounts department. Accounts department will match the documents came from custom department and import department, after checking the documents accounts department again send it to import department, they compile the documents and send to the bank with a retirement letter that we have received the goods, please debit our account and retire the L/C. Bank will do the same and sends the information to the SBP for its record.

Types of L/C:
The following points are the major types of L/C using in the company: 1) At sight 2) Usance

At sight:
At sight implies that payment will be made at sight, on demand or on presentation or within fifteen days after presentation of documents.

Usance:
Usance implies that payment will be made at maturity date.

Request letter:
Request letter is a document on which the importer will request a bank to open an L/C of a particular amount.

Performa invoice:
Performa invoice contains all the details of the imported goods as described in the above procedure.

Form-I:
Form-I is basically requirement of State Bank of Pakistan because SBP wants to maintain a record and analyze that how much imports during a year in a country.

Additional conditions:
Additional conditions are the conditions other than the common requirements. It is a document on which importer gives direction to the exporter to obey these conditions e.g. send the four copies of commercial invoice/ packing list etc.

Insurance cover letter:

Insurance cover letter indicates that importer has insured the imported goods.

Endorsement on Non-negotiable documents:

If importer stock is reached on the port but original documents not yet received by the bank then importer will give acceptance that we are agree to pay a certain amount on the arrival of original documents. Importer do this because he wants the stock as earlier as possible, so bank endorse on the copy documents and held a 10% margin due to fluctuating in currency rate and importer release the goods with copy documents. When original documents arrived bank informs the importer and again he negotiates the rate of the currency and transmits to exporter. However the margin held by the bank will be credit in the importers account.

Bank charges:
Bank charges are varying from company to company. As far as Nishat Textile Mills is concern: Bank charge 0.025% of the total amount at the time of opening L/C and 0.025% at the time of retirement. Discrepancy charges that is mention in the L/C; and Swift charges will also be charged from importer.

Price term use in L/C:

FOB (Free on Board) CNF (Cost and Freight) CIF (Cost Insurance and Freight)

2) Advance payment:
Advance payment is another method of importing the goods. It is entirely different from L/C. Advance payment word refers that the importer will pay in advance against imported goods. Starting procedure is same as describe in L/C that purchase department make an agreement with the exporter and send a performa invoice to import department that contains all necessary information regarding the goods. Import department will send a request to bank to transmit the money after deciding the currency rate. When bank transfer the money it will issue a copy of TT as proof that it has transmitted the said amount to the beneficiarys bank. The following documents are required for the request: Performa invoice Request letter I-Form

When bank issues the TT as a proof imports department send this document to accounts department as well as the agent who will release the stock from custom. In advance payment the goods directly transfer to the customer, there is no need to send the documents to the bank. So, agent will release the goods at the time of shipment by showing them TT document. At the time of releasing the goods there will be a document named Bill of Entry which should made to enter the goods in Pakistan. Bill of entry indicates that a certain amount of goods in entered in a country from a certain country. After clearance, an agent sends the Bill of Entry to accounts department that will match the documents sent by an agent and import department to verify that the quantity should be equal to the sent amount. After verification it returns to the import department and import department sends these documents to bank with a copy of bill or entry and retirement letter that we have received the goods please retire this agreement. Afterward bank provide this all information to State Bank of Pakistan for its record.

Price term use in Advance payment:

FOB (Free on Board) CNF(Cost and Freight) EX-WORKS

3) Bill of Entry:
Bill of entry is very similar to advance payment. It follows the whole procedure of advance payment but the only difference is: Sometimes it happens that importer receives the goods in advance but payment not yet made. In this situation exporter request to importer to make my payment and import department direct the bank to make payment to the exporter. Before transmit the money bank require original bill of entry instead of copy because bank insures that either importer received the goods or not, and this money should not be used for money laundering.

4) Contract:
Contract is made when both parties importer and exporter have good repute and trustworthy. It is used to reduce the cost. Contract is same as L/C but the exception is that there is no obligation as in the L/C. In contract importer just register his contract in a bank but there is no need to open L/C or checking discrepancies etc. He registers the contract and informs the name of the bank to the exporter. Exporter sends the documents to a particular bank after load the goods. Bank just gives intimation the importer about the arrival of documents. Keep in your mind; here bank will not check any discrepancy or missing documents. It will provide the documents what is came from exporter. Importer allow the bank to transmit the money and get the original documents to release the goods from the port.