Many of you will choose to import goods from abroad (outside the European Union). If and when you do, it’s essential to fully understand how importing works; what extra costs are involved, time frames for delivery etc.
For many new traders, Importing sounds like a nightmare to go through. But in fact, it’s not that complicated at all IF you know the basics behind the importing process – payment, shipping, taxes and customs. In this blog post I’ll try to cover most of the important aspects of importing from China and other countries outside the EU.
What does “importing” mean?
In general, importing means that you’re buying goods from a supplier outside your country. However, in my examples I won’t be counting European Union countries as goods can be freely moved across the EU without paying extra import duty or VAT. For most of you, China and the United States will be the top two countries to import from, so let’s cover them in detail.
Shipping costs will make up a substantial percentage of your total product cost, so it’s important to keep them as low as possible at all times. As a general rule of thumb, the bigger your order, the lower ‘per item’ shipping costs you’ll face. There’s no point in importing one pair of unbranded shoes from China as the shipping costs will be far more than the cost of the product itself. Volume is the key to success when building your eBay business around an “Importing from China” product sourcing concept. But that doesn’t mean you have to start off with full container loads either!
Here are the 4 most popular shipping methods you can use to import goods from China:
1) Regular Post. This means normal, regular China Post which can take up to 6 weeks to arrive. No online tracking is provided. It can be used for parcels under 2kg. Usually, you will only use regular post for samples and again ONLY if time is not that important and you can afford to wait a few weeks for a package to arrive. China Post is not the most reliable system so be prepared for lost/stolen packages.
If at all possible, I try to avoid using China Mail for any shipments as the delivery time is simply too long.
If your supplier is located in Hong Kong, you can use HK Airmail which is way more reliable, comes with a tracking number and usually arrives within 5-10 days.
2) Courier. Shipping with a courier company will be the most suitable method for most people starting out IF it involves small, lightweight items. With courier companies such as TNT, DHL, UPS or FedEx you pay a premium price for each kilo BUT you get fast delivery times and an online tracking facility. These days most courier shipments take just 3-5 business days to arrive in any Western country from anywhere around the globe. I personally use TNT and DHL most of the time as their prices have worked out lowest for me. For a 50kg package, expect to pay around £4 or £5 per kilo.
3) Air Freight. This is somewhere between courier shipping and sea freight. Shipping times vary from company to company, but in general range between 5 to 10 days which is not bad at all! With Air Freight costs will be significantly lower than with courier companies, but extra work is involved when the goods arrive in your destination country. With Air Freight you’ll usually have to handle documentation and customs clearance on your own (unlike with courier companies), which for many newbies may seem impractical. Of course, you can always outsource these tasks to a freight forwarding company at an additional cost.
With Air Freight, expect to pay £2-£3 per kilo for a 100kg shipment.
Air Freight is usually cost effective once shipments are in the range of 100kg or more UNLESS very bulky items are involved; if that’s the case your only viable option is to use Sea Freight.
4) Sea Freight. This is the most popular shipping method used by big companies to import goods from China. The cost per kilo (£100-£150 per pallet, even less if you can order full or half-container loads) is very low but the downside is the lengthy delivery time. Depending on where you’re located it will be in the vicinity of 30 to 40 days in most cases.
Just like with Air Freight, you’ll have to take care of the documentation, customs clearance and delivery of goods from the port to your home or office. It’s not that complicated to be honest – I do this on my own on a regular basis, but I understand that for newbies it could seem too complicated and that’s why I recommend using a freight forwarding company that will take care of all the procedures and deliver goods right to your door.
Also, with Sea Freight it’s very important to calculate all the EXTRA COSTS involved once the goods arrive in your country. Your supplier will usually give you the FOB price, which means that the goods are loaded onto the ship. But that’s not the end of the story! Once your shipment arrives at the port there are all kinds of extra charges, such as:
- Unloading charge;
- Port fees;
- Docking fees;
- Storage fees;
- Clearance fees;
And I’m not talking small figures here! These fees can run into hundreds of pounds! That’s why it’s crucial to take these numbers into account BEFORE you order any goods so that you know precisely what your final product cost will be.
Again, the easiest way to keep these costs under control is by using a freight forwarding company. You can ask them to quote for door-to-door delivery which includes all the fees associated with Sea Freight shipping.
Even with all the additional fees Sea Freight is still the cheapest shipping method for imports from China. Remember that it’s cost effective ONLY if your order is big enough. Usually, a half pallet or one full pallet will be enough if your margins are right. Again, this will depend on the kind of goods you’re importing, their value and weight. Sometimes Air Freight offers the same savings as Sea Freight with the added bonus of much speedier delivery.
In general, Sea Freight is better for bulky items or in cases where the shipping time is not that important. Personally I try to stick to couriers and Air Freight as often as possible as I just can’t stand the long wait involved when using Sea Freight. (but then again I deal mostly with small, light weight items).
Advantages of Using a Freight Forwarder
Here is some good news – I have recently started recommending a freight forwarding company called Woodland Global. You may already have heard about them if you’re an active member of The Wholesale Forums as Darren, who works for them, is a member there and he helps people with questions about importing.
Woodland Global is a great company to deal with and so far I have only heard positive feedback about them:
- There are no yearly or joining fees;
- They’re UK based and very easy to get in touch with;
- They’re fast because they ship containers from China on a weekly basis;
- Their pricing is very competitive, even for small-time importers;
- They will deliver goods to your door and take care of all the documentation.
In a word – Woodland Global is a perfect solution for small-time importers! Their fees are very affordable and they’ll even deal with small orders. If you’re interested in their services and need a quote, get in touch with Darren on TWF or simply use the contact page on their website.
Imagine the kind of opportunities this opens up to you, especially if you’re just starting out on your journey and you’re still looking for the perfect niche? Most people stay away from bulky items as they don’t want or don’t know how to deal with Sea Freight shipments effectively. Now, with the help of a freight forwarding company, it’s suddenly not so much of a problem anymore!
Woodland Global can even pick up goods for you in China and deliver them to the nearest port. However, if possible, always try to arrange shipment of goods to a Chinese port via your supplier, as this will often work out to be cheaper.
Shipping from the US
If we talk specifically about importing from the USA, the cheapest option for sending parcels is with the US Postal Service. They’re reasonably priced, especially if you don’t opt for their fastest shipping method. You can send up to 30kg per shipment and the closer you get to that 30kg mark, the cheaper the price per kilo.
Even if your order comes in at 50kg, you can simply split it into 2 shipments and still send it via USPS. Of course, this will only work with small, lightweight or valuable items, not furniture or LCD TVs. For bulky items you’ll want to go back to using Air Freight or Sea Freight.
As you can see, each method has its advantages and disadvantages, but in general you should be able to make your decision based on these 3 major factors:
1) Size and weight of the shipment
2) How long you can wait before the shipment arrives
3) Value of goods
In other words, the best shipping method will depend on your order!!!
When dealing with ANY supplier for the first time, you have to be extremely careful. There are so many scammers operating out there in the wholesale industry, so before you decide to send money to your supplier, make sure you do all the background checks available to you to make sure you’re dealing with a legit company. And even then, always, always start with a small trial order to avoid huge losses if that supplier turns out a scammer.
When you have done all the checks and verified the supplier, you can place your first order. Which payment method is safest to use? Usually, suppliers will accept the following:
Wire Transfer – this means sending money from your bank account to the supplier’s bank account. This is the most common payment method used in B2B transactions. Wire Transfer doesn’t offer ANY protection, so only use this method with suppliers you trust 100%. Sending money to a supplier in China can take up to 5 working days.
Transfer fees will vary from bank to bank but in most cases will be in the region of £10-£30. Most banks offer international wire transfers at a reduced cost when you use the bank’s ONLINE banking facility. Finally, the fee you pay your bank to carry out this transaction is usually a fixed one which means that the more money you send per transaction, the lower per pound fee you’ll pay.
Most Chinese companies will accept wire transfer as a default payment option. If they don’t, it may be a sign that something dodgy is going on. Make sure you only send money to the company’s bank account and not to a personal bank account, no matter what story the Chinese supplier tells you.
It’s worth bearing in mind that even though your bank may charge you only a fixed fee for making the payment, that there are usually additional fees involved. Banks typically add a markup to the exchange rate and so you end up having to pay more to send money overseas.
TransferWise: Companies that specialise in international money transfers could save you a substantial amount of money if you’re looking to make frequent transfers to your Chinese suppliers.
FCA and FinCEN regulated, TransferWise are up to eight times cheaper than banks when it comes to making international payments. They always convert money at the mid-market exchange rate – ie. the rate you see on Google is the rate you’ll receive. The only fee you’ll pay is a small, upfront fee on the value of the transfer. You can also make global USD payments to your Chinese supplier and with their fixed fee of $2 + small % cost of currency conversion, their rates are very competitive.
Setting up the payment is simple as well. You sign up for a free account, set up your transfer by entering your supplier’s bank account information and state what currency you’d like to pay them in and then fund your transfer. Options include bank transfer and debit/ credit card. Your supplier won’t need to do anything. For them, it’s just like receiving cash into their bank account.
With over 3 million customers and co-founded by the first employee of Skype, you can be assured that your money is sent securely. However, just like with a normal wire transfer, your money is not protected if your supplier turns out to be fraudulent so it’s best used when you’re paying a supplier you trust.
You can find out more about TransferWise in my post here.
Credit/Debit cards – one of the safest ways to pay for goods is by using your credit card. Chinese suppliers will vary rarely take credit card payments but companies in the EU or US will, in most cases, be happy to accept credit card payments. Some companies may add on a small extra fee to cover the fees they have to pay themselves when they accept a payment by credit card.
Why are credit cards good for paying your supplier? First of all, with most card issuers you can initiate a charge-back if something goes wrong with your order or the supplier turns to be a scammer.
Secondly, most cards offer a cash-back or points system where you can actually get some money back in the form of bonuses from your bank – be they frequent flyer points or extra cash in your bank account.
Lastly, if the supplier accepts credit cards it’s a pretty good sign that he’s legit, especially if we are talking about suppliers in the UK and US. Why? Because it’s not that easy to set up a merchant account and start taking credit card payments. Companies have to undergo a strict verification process to be able to take card payments and this is something most scammers won’t do.
PayPal – I’m sure you’re fully aware of what PayPal is and how it operates. These days, most Chinese suppliers will accept PayPal payments. All your payments with PayPal are protected, so you can always open a dispute and request a refund if a supplier has scammed you. Now, you will not always win those disputes, but PayPal’s most recent policy is generally buyer friendly and sellers are the ones who have to prove that the transaction was legit and the goods were delivered.
Again, it’s not that easy to open a PayPal account in China, which is why scammers try to avoid using PayPal and will push WU, MG or other similar, unsafe payment methods. As with a wire transfer, make sure you’re sending money to the PayPal account of the company you’re dealing with and not a personal PayPal account.
Escrow – Legitimate suppliers know how important safe payment methods are to buyers and that’s why when dealing with suppliers on Alibaba, you now have the option of using Alibaba’s escrow payment system.
What is escrow? With escrow, you first send the money to an escrow company and they hold it for you until you receive and inspect goods and only then release the money to your supplier. It is by far the safest payment method as you ONLY pay your supplier once you have received and inspected the goods.
Western Union, MoneyGram etc. – NEVER ever deal with a supplier who only accepts Western Union, Money Gram or similar payment methods! The only time you should use Western Union is when you are ordering product samples as WU transfer fees are much lower than bank transfer fees.
But only do it with totally verified, trustworthy suppliers. When you use WU, you can’t actually send money to a company; only individuals can send and receive money via the WU network.
Most scammers will only accept payments via Western Union. If branded goods are involved, it’s a sure sign that you’re dealing with a scammer!
Personally I try to stick with PayPal when dealing with Chinese suppliers and PayPal or credit card when dealing with US based suppliers. Wire transfer is usually ok for European suppliers and manufacturers, if we are talking about verified suppliers.
Currency Exchange Rates
There’s not much really you can do about currency exchange rates; you simply have to accept them as an additional cost when dealing with suppliers abroad. If you’re dealing with large amounts of money (in excess of £10k+), you can look for currency exchange companies that may offer you better rates. Personally I have never used such companies as I’m only dealing in high profit margin items these days where 1% doesn’t have any impact on my bottom line.
If PayPal is the only payment method offered by your supplier, you simply have to accept PayPal’s exchange rate as it is. If wire transfer is an option, you could probably get a better rate from your bank BUT they’ll take a commission on an international transfer which will offset all the savings you would make on the currency exchange.
If you have a really strong, long-term relationship with your supplier, and you’re 100% confident they won’t scam you, try offering a PayPal Mass Pay option to your supplier – in return for a percentage from the total you have to pay (PayPal won’t charge any fees to a supplier using Mass Pay).
So for example, if you pay $1000 via PayPal in the usual way, PayPal will charge a fee of around $30 and the net amount the supplier will receive will be $970.
But if you agree to using Mass Pay, the supplier might charge you only $980, generating savings for both parties. $20 may not seem that much but that’s only if you send $1000. For larger payments this method can save hundreds of $ in fees! REMEMBER, only do this if you’re 100% confident about supplier you’re dealing with!
To sum it up – factor in currency exchange fees as an additional cost that you can’t do anything about! PayPal will probably turn out to be the best payment method for you, especially if you sell on eBay (buyers will also pay you via PayPal, simplifying cash flow for your business).
When you import goods into the EU from abroad, you have to pay two kinds of tax before the goods are actually released to you:
- Value Added Tax (VAT)
- Import Duty
The VAT rate is different for each European Union country, so make sure you check your country’s specific VAT rate before making any calculations. The current VAT rate in the UK is 20%.
Import duties vary widely from product to product so do check the accurate rate with the help of this free online calculator:
Import duty will be usually be in the range of 2%-5%, but with some products it can be as high as 10% or even more. On the other hand, with some product groups you won’t have to pay import duty at all, so be sure to check out that online calculator to see exactly how much import duty you’ll have to pay for your particular goods.
REMEMBER!!! Import duty is payable only on the goods’ value, but VAT will be applied to the TOTAL of:
Goods’ value (price paid to the supplier)
So VAT is calculated on the value of the goods + shipping + import duty. I just wanted to clarify this as people often get a nasty surprise when they see a bigger number than the 20% of the goods’ value they were expecting.
Register for VAT or not?
Many people who are just starting out importing will ask this question – should I register as a VAT payer before I import goods from abroad? The answer is NO, NO and NO! Without going into numbers and complex calculations, you will want to stay away from VAT registration as long as possible (that is, until you reach the maximum turnover after which you HAVE to register for a VAT number by law).
So just remember that you don’t have to register before you reach the threshold. The current VAT threshold in the UK is £77K over the previous 12 months. You can even ask for an exception to be made if your turnover exceeds this amount temporarily. You’ll find more details on the HM Revenues and Customs website. VAT thresholds vary from country to country, so if you’re based outside the UK, be sure to check the local laws regarding VAT registration.
Read more about VAT registration for small businesses here.
A few years ago the EU introduced an EORI number to monitor imported goods. This number is used for statistical purposes and there are no extra costs involved.
You’ll find more information about EORI on the HMRC website. As a general rule of thumb, if you’re a registered business it’s a good idea to register for EORI before you start your importing activities or else the process of receiving your shipment when the goods arrive in the UK may be delayed.
EU regulations, CE mark.
With some product groups you have to be extremely careful when importing goods from China, or any other country outside the European Union as you must ensure they comply with EU rules and regulations. Some sensitive product groups are:
- Health & Beauty products
- Children’s toys and equipment
- Chemicals, drugs, creams etc.
What you’ll find is that most Chinese suppliers will tell you that all the certificates are in order : DON’T take their word for it! If you can, verify that all the documentation is genuine so you can import those goods into the EU without any chance of them being seized and destroyed at customs.
Copyright & Patent Issues
Another sensitive question – patents. You’ll eliminate copyright issues as long as you stay away from branded items and items with branded designs (such as kids’ toys with Disney characters, company logos, movie characters etc.) With patents, the situation is more difficult as there is no easy way to find out whether an item you want to import from China doesn’t breach any registered patents. What you can do though is ask your supplier about potential issues with this BEFORE you place your order.
Patent issues often come up with electronics and specific instruments and devices, so if you’re dealing with some really fancy device or piece of equipment, make sure the supplier’s products don’t use any patented, protected technology.
Don’t be afraid of the importing process, but start small.
It’s not as complicated as it looks, especially if you use courier as a shipping method. With couriers you don’t have to worry about long shipping delays or customs clearance as they will take care of all the documentation for you.
Take it step by step – place a small order on AliExpress and see how it works out. On AliExpress you’re protected by an Escrow Payment System, so if something goes wrong with your order, you can always open a dispute and get your money back.