Businesses that operate internationally need to treat their cash flow planning differently than those that operate domestically. There are many additional details to consider for international transactions, including export costs which, ideally, should be determined alongside a timeline that tracks where and when these costs are incurred and when they are due for payment. These costs can be added to the company’s domestic costing worksheet to help the exporter fully understand the cash flow implications of trading internationally.

To help you understand more about some of these common costs in international business, we’ve compiled a list of 10 export costs you need to consider when projecting cash outflows along with an export cost timeline.

Figure 4.1 arranges typical export costs in the order in which they occur as a first step to projecting cash outflows.

For businesses that deal with importing and exporting in their operations, it is important to know which of these costs are the responsibility of the exporter and which ones are the responsibility of the importer. This can be easily determined by looking at the Incoterms® rules negotiated between the two parties during contract negotiations.

Want to learn more about Incoterms® rules?  Take the Incoterms^® 2020 online course, presented by FITT and the Canadian Chamber of Commerce (CCC).

The chosen Incoterms® rule determines the importer’s obligations and the exporter’s obligations, such as who pays the cost of transport, delivery and insurance. Learn more about these export costs below:

1. Business Development Costs

Even before the signing of a deal, there are various business development costs associated with making the sale. These may include travel, telephone and fax, promotional and marketing costs, legal fees, and possibly foreign agent’s fees. Most of these costs must be paid up front, regardless of when/if a deal generates revenues. These initial costs can impose a significant burden on the cash flow, which may make the need for financing even more urgent.

2. Contract Negotiations

Once the importer shows interest in dealing with the exporter, both parties begin negotiating a firm contract. Depending on the complexity of the product, contract negotiations require input from many professionals. A lawyer may be required to help negotiate terms and conditions that secure each party in the event of contract cancellation, non-performance and non-payment, among many other possible scenarios. At times, contract negotiations can take many months, if not years, to conclude. The time invested during this time is at the cost of each company with no compensation other than the hope that the contract with bring fruitful benefits to each company.

3. Manufacturing Cost Per Unit

In most cases, these costs are the same as those for domestic transactions, except where production is modified to meet specific foreign requirements. Coverage of these costs may fall under the company’s existing credit arrangements, unless the export effort is significantly large in comparison with the company’s current capacities. Some differences can occur with product cost per unit if the order is large enough, and special costs will therefore have to be borne. New employees, added export administration, extra factory space, and more expensive materials may be necessary. In that case, a new cash flow worksheet must be completed to factor in the additional costs relative to expected revenues.

Did you know that you can preview FITTskills courses for FREE? This topic is covered in the FITTskills Lite Unit on Cash Flow Management. Get the download below:

4. Labelling

This is one of the up-front costs incurred in exporting. If it’s done in-house, there will need to be special print runs and adjustments made to machinery, although the out-of-pocket costs may be minimal. For many overseas markets, they may need label information translated. If contracting out both translation and printing, the exporter can expect that payment for these services will be due within 30 to 60 days after the order is complete.

5. Packing

Shipments must be ready for international transportation. Many countries have strict regulations. Even if the packings done in-house, the exporting firm may have to purchase materials, such as crates, boards or Styrofoam. Payment for these materials will be within 30 to 60 days of delivery. If packings done by an external supplier, such as a freight forwarder, the costs will be even more significant. In some instances, it may be possible to secure extended payment terms from suppliers in recognition of the length of time that will pass before receivables are paid.

Want to learn more about methods of settlement in international trade and other risk mitigation options? Check out the FITTskills International Trade Finance online course.

6. Forwarding Agents Fees

The forwarding agent’s fees cover activities such as preparing documents, securing insurance and arranging for transportation. These fees are usually payable in 30 to 60 days after loading the shipment onto an international carrier. The timing of the costs may be negotiable, but the negotiation must finish before the transaction occurs.

7. Export Commissions

To earn an export commission the signing of an export transaction must occur, but payment terms may be negotiable. The exporting company should try to move the due date for payment of commissions either close to or past the date on which it expects to receive payment from the importer. If the company is factoring the transaction, however, it may be able to pay sooner without impairing cash flow.

8. Shipping and Storage Costs

The shipping process entails many costs, payable to a wide variety of service providers. Freight forwarders, domestic carriers, port authorities, and international carriers may all perform services requiring payment. As suppliers of shipping services are familiar with the realities of international trade, they may agree to payment terms that are common among domestic suppliers.

9. Cargo Insurance

This cost is payable within 30 to 60 days of shipment. Shippers may offer extended cargo insurance as part of their service and may thus accord extended payment terms for it. Otherwise, factor this cost into a transaction as being payable before receiving the full funds for deliverables. If packings done by an external supplier, such as a freight forwarder, the costs will be even more significant. It’s possible to secure extended payment terms from suppliers in recognition of time that will pass before paying for receivables.

10. Customs and Clearance Fees

Customs and clearance fees are due immediately on arrival of the shipment in the destination country. For customs brokers employed to clear the goods, those fees add to the other costs. If the contract specifies that the exporting firm is responsible for this part of the transaction, the firm will need cash on hand to cover these costs before the goods can be landed and delivered to their destination.

By keeping these costs in mind, an exporter will be able to work through the cash flow forecasts and ensure the cash inflows match the cash outflows as much as possible to minimize the company’s reliance on financing. This exercise can also help the company negotiate the milestone payments and ensure it follows the contract completion to minimize payment default in future.

Other Costs

The export costing calculation offers an indication of some of the other costs involved in a transaction. It also gives clues as to when they might affect the cash flow. For example, paid monthly for the duration of the transaction are insurance premiums. By contrast, you only feel the impact of discounting a receivable when the receivable sells.  Among other costs to consider are receivables insurance, contract cancellation insurance and various financing charges. When using a line of credit these might be paid monthly or at the end as part of the collection and settlement process.

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Besides commercial and transport documents, exporters must organize certificates, documents and approvals that will satisfy foreign customs as to the value, country of origin, weight, quality, and safety of the goods being shipped and demonstrate approval to trade controlled goods. These certificates and approvals required for international shipping by customs are dependent on the type of goods being shipped (e.g. food, plant material, electrical tools, used clothing), and the regulations of the country accepting the goods.

It is important to ensure that all the certificates and approvals are in place prior to reaching the border to prevent delays or extra costs, e.g. storage. Provision of such documents should be specified as one of the terms of a sales agreement/contract. Importers need to ensure they inform exporters of the importing requirements so that goods can meet the standards and proper certificates can be obtained.

The following certificates and approvals have been organized and grouped as follows:

• Certificates of origin
• Packing declarations
• Certificates of quality and safety
• Importer/exporter declaration
• Importer/exporter licences and permits
• Consular invoices

Certificates of Origin (CO)

A Certificate of Origin declares that goods to be exported in a shipment have been grown, obtained, produced, manufactured and/or processed in a particular country. Customs importers, freight forwarders or banks may request Certificates of Origin for clearance of letters of credits. Certificates of Origin should provide the following international shipping information:

• Name and address of exporter
• Name and address of producer
• Name and address of importer
• Time period of certification
• Description of goods
• HS code
• Gross weight or other quantity
• Signature, name and contact information of authorizing individual

Certificates of Origin are important when there are international free trade agreements as there are opportunities for preferential rates of duty and special tariff treatment if the country of origin is a signatory. For example, special tariff treatment is extended to goods traded between countries that are signatory to the General Agreement on Tariff and Trade (GATT), administered by the World Trade Organization.

The main criteria for these special tariff treatments are:

• Goods are grown, produced or manufactured in a country entitled to the specific tariff treatment
• Not less than a certain percentage of the production cost was incurred in the country of origin or a country entitled to the same or a more favourable tariff treatment
• The goods are shipped directly (or by acceptable transhipment) from one qualifying country to the other

To substantiate their entitlement to the preferred rates of customs duty available, importers must have a Certificate of Origin and must present it to customs if requested.

If you are a manufacturer or an exporter, check with your governments customs or revenue agencies to determine rules of origin that apply to identify what agreements can impact the taxes and duties you could be charged and to make sure your claim is valid.

Want to learn more about managing all necessary documentation for exporting and importing goods and services? Check out the FITTskills Global Value Chain online course.

Packing Declarations

A packing declaration is a letter from the packing supplier or shipper or exporter stating that the type of materials used for packing and the packing container meet the standards for entry into a country. Some countries may require other certifications if certain materials (e.g. straw or wood shavings) are used for packing. A Dangerous Good Declaration is another form of packing declaration certifying that dangerous goods are packaged, labelled and being transported in accordance with international shipping regulations.

Certificates of Quality/Safety

For some shipments, the contract terms will call for additional documentation that verifies that the grade or quality of a product meets the requirements of the importing country, or as proof that the goods have passed through health or sanitary inspections. These are not international shipping documents, but in many cases the exporter will need these documents to pass the goods through customs and have the goods admitted into the importing country.

Typical certificates include the following.

Phytosanitary certificates verify that the plants and plant products covered by the certificate are free from quarantine pests, practically free from other injurious pests, and that they conform to the country’s phytosanitary import requirements. It is an official document issued by the plant protection organization of the exporting country to the plant protection organization of the importing country. A phytosanitary certificate is a requirement for propagative (reproductive) material (excluding specified seeds) imported from all foreign countries, and for other specified plant-based commodities.

Food safety or consumption certificates verify that the type of food being exported is an approved species, meets certain labeling specifications, approved storage conditions, meets specific content levels (e.g. sulfites), approved for human consumption, and other requirements based on the different food types. Many countries trade or food safety regulatory agencies will have databases that can be accessed for importing requirements for different types and classifications of food products. For example, the Canadian Food Inspection Agency’s AIRS (Automated Import Reference System), provides information to importers on what is required for specific food items to be brought into Canada from different countries. These certificates, depending on the food type and the import requirement, may require inspections or laboratory testing and analysis.

Public health and veterinary certificates verify that animal products come from animals that have been reared, slaughtered and processed in regions free of disease, and that live animals and their rearing environment are disease-free. This type of certification requires an inspection by an authorized inspector.

Safety standards certifications confirm that the goods conform to the importing countries regulatory or technical standards. They are required for specific types of goods being brought into the country (e.g. electronic goods and appliances). Performance and safety testing is carried out by accredited organizations with testing facilities, which certify that the goods meet the requirement of the importing country, and affix the required safety mark. There are many different types of safety standards and marks that are accepted by different countries.

Treatment certificates verify that specific treatments have been administered to ensure that the goods and packing materials are not bringing in any unwanted species. For example, in Australia, goods or packing materials made from wood, especially with bark on it, must be fumigated. Some food items may need to be irradiated, or some items made from fabric must be certified new material or be disinfected. Authorized providers of the required treatments would provide these certificates.

Go deeper and learn all aspects of recording, filing and storing everything you need to maintain efficient day-to-day operations. Get started with the FITTskills Document Management online workshop today and complete it in 30 days or less!

International shipping approvals

Approvals of shipments by importing governments are required before goods are shipped or before reaching a port of entry when importing or exporting specific controlled or restricted goods. This form of government approval is a way for governments to monitor and control the flow of specific, restricted and/or controlled goods, e.g. dangerous goods, nuclear materials. The following types of documents are pre-authorizations imposed by governments of countries accepting imports or allowing exports that importers or exporters must obtain.

Importer declarations are statements of the type of goods and the quantity being brought into the country using a customs form completed by the importer or an agent acting on their behalf.

Importer licences and permits provide approval and permission for an importer to bring in a specific amount of certain goods that are controlled by the importing country, for a specific time period. A licence is used to control the entry of dangerous or restricted products, such as firearms or to protect domestic markets from foreign competition.

Exporter declarations are statements of the amount, nature and value of the exported goods completed by the exporter prior to shipping goods. The declaration may need to include an export licence and/or a certificate of origin. These declarations provide statistical data on foreign trade for the exporting country and are used as control documents to monitor the export of specific products.

Exporter licences or permits are required when exporting specific types of goods to certain destinations. These documents allow the government of the exporting country to monitor or control the flow of these products. This may apply to goods that are potentially sensitive (e.g. advanced computer technologies), prohibited (e.g. drugs, plant materials), dangerous (e.g. explosives or radioactive materials), or in short supply.

Consular invoices (CI) are certified statements of the goods being shipped that are approved by the consulate representative at the point of shipment. CIs attest to the marks, numbers, weights, value, and origin of the goods. They are declarations of the accuracy of the contents of the shipment’s invoice. CIs are in the language of the importing country and must be filled out in that language; some translation of accompanying documents may be required. CIs facilitate customs clearance of the shipment into the importing country. Typically, consular invoice forms are purchased from the consul of the importing country, and as many as six copies may need to be completed. The consul must then legalize these documents. Other documents, such as the commercial invoice, are typically presented to the consul at the time the consular invoice is validated.

Pre-inspection certificates verify that the shipment of goods meets the requirements for that type of good prior to the shipment crossing the border. These certificates can be a requirement of exporting or importing regulatory authorities. An inspector, authorized by the appropriate regulatory agency, physically examines samples of the shipment before issuing a certificate. These certificates typically apply to shipments of live animals and unprocessed food items. These inspections may also be required at the port of entry by customs agents.

When importing services, the importing country may require the service business to be registered with their domestic revenue or tax agency. Permits or licences to supply the service domestically may also be required. Another requirement of importing services may be to use a local agent as a representative. Consult embassies, consulates, trade commissioners and regional chambers of commerce for information on trade in service requirements.

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Since the November 2015 restructuring at an Ottawa Crown Corporation, when my position of Manager, Logistics & Customs Compliance was abolished, I have been working on my own personal logistics project – to relocate my career, home and life to beautiful Victoria, BC.

Starting with what’s most important

For me, all major decisions are about family dynamics and ensuring those important to me support the decision, which, happily, they do.

My mother has resided in Kelowna, BC for several years and as an only child, it is time for me to be closer to her, as it is harder for her to travel long distance.

My daughter is attending the University of Dalhousie in Halifax working towards her Bachelor of Science, Major Psychology.

Her future goal is to obtain her Masters to become a speech pathologist to help others. I hope that one day, we will all live in the same province to allow for more time together for family visits.

In-demand skills from coast to coast

Through my research, I realized that Western Canada was in great need of the international supply chain skills and experience I have obtained through over twenty five years of experience working in the industry in Ontario.

Through my most recent position as Manager, Logistics and Customs Compliance, I was able to add to my portfolio of experience and receive hands-on training in government procurement processes to include contract writing and vendor management.

This opportunity complimented my many years of international trade logistics operations and sales experience.

All of my employers to date have provided a positive experience and helped to grow my networking contacts which I am thankful for.

Through my involvement with the FITT community, I realized my talents for training and enjoyment of delivering presentations for the internal teams to better understand international trade processes.

I put these skills and experience to work to make the biggest move in my career.

Learning to lighten up

My next steps were to put the target date of March 1st in place so that I could create a timeline, as my proven theory for success is to “begin with the end in mind”.

A wonderful friend offered me her home to house sit for month of February which solved the logistics of a in-transit residence.

I had to hire a moving company who was reputable, cost effective and available to deliver in my required date. Next, I gathered all the details on my personal effects.

I ran an RFQ (Request for Quote) with the top 10 moving companies in Canada for approximately 2500 lbs of personal effects and 1 vehicle.

When the quotes arrived, it opened my eyes to the fact that I truly did not need everything I was intending to bring. I took the opportunity to lighten up, and only bring what actually was both needed and wanted.

I was able to unload approximately 500 lbs of items, which also gave me a welcome inbound cash flow and a feeling of lightness from being less bound to possessions.

Based on my many years of warehouse experience, I decided to do all of the packing myself, using professional, high quality packaging materials to reduce risk of breakage on the long journey from Ottawa to Victoria, which is approximately 3579 km (2219 miles) and includes ferry transport.

Traveling with “precious cargo”

The next step of the logistics process was to decide whether I wanted to contract shipping of my car to the mover, or drive it myself for the 5-6 day journey, with two cats (precious cargo) in the car.

I decided to ship the car and fly across Canada with the two cats, who as you can imagine, do not enjoy traveling.

In the quotes I received, most moving companies offered only to ship my car by rail. The RFQ winner offered to move my vehicle in the same truck with my personal effects at same cost as rail.

This way, all items arrive together, which works much better logistically and reduces risk, as the car will not be exposed to weather elements.

The biggest surprise I received in this cross-Canada relocation project is that pets in general are not welcome in rental units in Victoria, BC.

Engaging my research skills, learned from my FITTskills training, I was successful in finding a website for “pet friendly properties only”.

A healthy dash of good fortune

Sometimes, even the best-laid logistics plans benefit from a bit of good luck, and I believe that is what happened to me.

I emailed four rental companies with my wish list requirements: hardwood/ceramic floors, outdoor pool, water view/access for kayak, sunny with lots of windows, 2 cats allowed, close to city center and parking – all, of course, within a certain budget and available for mid-February/early March.

The next day, I received a phone call from my future landlord to advise that she was in the process of writing me an email to say good luck, but that she had no availability. Before she could hit send, a long term tenant entered her office and gave notice.

The last logistics issue was choosing the best airline to fly across Canada with the two cats in the cabin, rather than in cargo, due to the long journey.

To pull this off, my daughter will come to Ottawa from Halifax and we will each take a cat as hand carry cargo inside the cabin to travel to Kelowna. It’s the perfect opportunity to visit my mother and have a family reunion!

As the logistics plan was being put together, I was able to uncover numerous exciting employment opportunities in Victoria. I was soon given the good news of a job offer in Victoria as Senior Business Development Manager for a global logistics provider, which I will be honored to represent and partner with.

This, my latest and most personal “logistics project”, took approximately 90 days to complete from start to the finish target date I had set. In fact, my target date was March 1st and I should be relocated to Victoria by February 20th, over 10 days ahead of schedule!

One of the greatest points of this story is that the layoff allowed me to have the time to truly analyze and do all the required research to think about what I really wanted in my future career and lifestyle, including location.

I know many of us have had to go through this often life-changing journey of being laid off, but what I want to share is that not only can you recover gracefully – you in fact can make your life what you really want it to be by being freed up to make the best choices for you!

The advice that helped me was “you cannot control all elements of your life but you can control your reaction.”

Adieu, Ottawa

Although I have enjoyed Ottawa the last 25 years, I am ready for a change and am very thankful for this opportunity to make this life-changing decision to relocate to one of the most beautiful cities in Canada.

And thankful that my experience and training, including the FITTskills program, and the support of my fellow CITP®|FIBP®’s and colleagues has allowed me to do it smoothly, quickly and effectively.

LinkedIn has been the method of communicating this change to my business community, and I am amazed at the support and invitations already received to meet for personal networking on my arrival.

Although change is scary due to the unknown, I believe it’s possible for anyone to accept it and move forward to live your dreams, and most importantly believe in yourself and your abilities.

My experience is living proof of the old saying that “one door closes and another opens”.

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