Establishing a relationship with a new global trading partner requires a bit of research on your side to ensure a smooth transaction. Connecting with suppliers on the internet will expose you to everyone who wants to generate income, both legitimate and illegal.

Using the internet for an overseas transaction for a one-time purchase, whether for a big savings or fast profit, is risky and not encouraged. It’s too difficult to move swiftly on a transaction across the globe with someone you don’t know if the transaction begins to go awry. 

How can you verify if a company is legitimate? The key is to do your research independent from the seller.

For example, don’t ask the seller to provide certification or documentation of his company, as it could be an imitated document. Asking for a bank account name and account number may be legitimate in order to receive money, but it doesn’t guarantee an association with the product you want to buy, or the quality, or timely shipping.

5 key steps in performing due diligence

1. Confirm the company name and address with the supplier’s local government business licensing office. This will confirm the company you are researching is legitimately recorded with an official entity and paying taxes on business transactions. From these government records, get the company address, phone number and email contact information. (To find a government agency of a country, begin your search by contacting the country’s embassy and asking the names of the official agencies that govern business licenses.)

2. Connect the dots…is the person you are communicating with on the internet really representing the company, or representing himself? Confirming a company’s name and address does not guarantee the person on the web is a company representative. A scammer can profile himself as a salesperson of any company, and then request money be sent to a different address as a condition of shipping goods.

3. Contact the company, directly and independently from your original internet point of contact, via email or the phone number listed in the government records. Once connected with a staff member you can indicate you have been working with your original point of contact. If that person is an employee, you will more than likely be reconnected with that person to continue the transaction.

4. Ask for references of other businesses the supplier has shipped to, preferably in your country. Then follow up with that reference and see what they have to say about the supplier. This may not always lead you to useful information however. For example, large corporations may be unwilling to take time to verify these details. Or if they consider this supplier one of their best contacts that give them a competitive edge, they probably won’t want to encourage you to work with them. However if you are able to hear positive feedback from a reference (and you are certain the reference isn’t part of a scam), then that will add to your confidence.

5. After you have negotiated the details of your order, agreed on shipping terms and dates, and are ready to sign the purchase order, the best protection you can have is to pay using a bank’s Letter of Credit (L/C). If you are working with a new supplier found on the internet you should consider only paying through a letter of credit until you have established a solid relationship.

A legitimate business will invest money and time in establishing themselves as a profitable, successful company worthy of your continued business. There will be an obvious commitment of money paid for marketing, a professional staff, and consistent details such as address location. And if using the internet as one of their marketing strategies, they should have invested time in creating a website that is professional and maintained.

No one wants to be a victim of a scam, but it is human nature to want to get a good deal. It’s important to build a successful importing business on many factors, not just on a product’s cost. You need confidence you are working with dependable suppliers who deliver the quality they represent, are capable of filling your order in the time promised, packing the goods safely to prevent damage in shipping, and will be around in six months to make adjustments on your next order should you feel you are still owed something from the first transaction. 

If you are sending any money for any reason, and have not gone through the steps of verifying the company through a third party or checked on business references from other buyers, you may be involved in a scam. Unfortunately there are many stories of transactions where money has been sent on good faith, only to result in hard lessons learned.

Ask yourself 4 critical questions

1. Am I sending cash via Western Union or Moneygram?
No legitimate business will expect cash for a transaction to be sent via Western Union or Moneygram. Never! If this is part of the transaction, you are almost surely involved in a scam.

2. Am I sending money directly to the supplier without using a Letter of Credit?
If you are involved in your first transaction with the supplier, a good way to protect yourself is to handle the money exchange with a Letter of Credit. Your bank will be an excellent third-party that will hold your money until the goods have been received, and only then will release the funds to the supplier. Scammers will obviously not want to work with these types of transactions; they are looking for quick ways to get you to release your cash directly to them.

3. Have I asked the supplier for business references, and have I checked those references?
You must protect yourself and conduct due diligence when dealing with a new supplier. Check references! A legitimate global transaction takes some time. If you find yourself wanting to take shortcuts, speed up the process, or cut corners, you are vulnerable to scammers.

4. Am I speaking with a company that has invested time and money in setting up a comprehensive website?
The sole fact that a seller has set up a website does not guarantee a legitimate business. But most legitimate businesses will spend money continually to market their business. If you aren’t seeing the results of marketing dollars being spent by your supplier this could be a red flag that the company is not large enough or adequately funded to be around in six weeks when you expect your shipment to arrive. Some scammers will spend time to create limited websites, or may buy ‘verified’ profiles on trading sites. If you are working with a seller and can’t find any additional marketing efforts beyond free listings on trading sites, be cautious.

Keep these 4 key tasks at the top of your to-do list to protect yourself

1. Trust, but verify!
The step of conducting due diligence is important in business, and is most critical in international trade. Contact the company directly with information you have independently gathered from government agencies that collect tax on business transactions. Any legitimate supplier will be happy to provide banking information, past buyer references, and will be proud to explain their business success and why you should partner with them.

2. Grow Your Network
Ask for references. You may think this is a time-consuming step you’d rather dismiss. But the business person who asks for 3 references of satisfied customers not only helps your verification process, but can open doors with other trading partners. Do the math: ask 1 business for 3 references, and ask each of those references for 3 additional references, and in no time you’ll begin to sense if you are dealing with a legitimate group of like-minded businesses. More importantly, these contacts may lead to additional unexpected relationships you depend on as your business grows. If you find a dead-end in following the referral trail, move on. There are thousands of businesses wanting to establish solid, long-term profitable partnerships.

3. Never Send Details of Your Bank Account
In a legitimate business transaction, there is no need for the supplier to know your bank account number. The money will be flowing from your company to the supplier. There is no reason for the supplier to need this information.

4. Never Send Money Up Front
Until you have a couple of purchase orders complete and have a sense of how well the company can deliver on its promises, it’s best to work with a bank Letter of Credit, or “L/C”.  If you are asked to provide any money up front for any reason, be careful. By working with a bank you’ll gain the benefit of a third party who can ensure details are clear to their satisfaction, and are in a position to sense if something doesn’t sound legitimate. While your business funds will be held as a guarantee of payment when goods are delivered, the process will typically weed out scammers looking to make a fast buck off you.

A word about “fees”: No legitimate supplier will expect any type of “fee” paid directly to his company in order to engage in the transaction. The only monies a supplier should receive are for the cost of goods he provided. Any government fees resulting from the transaction, such as duties and taxes will be paid to government agencies once the goods have been shipped. If you are being asked to pay any type of fee prior to receiving the goods, especially if the supplier is asking he receive the funds, you are involved in a scam.

For examples of how the latest scams are conducted, review these important resources:
Interpol: Financial and High-Tech Crimes
United States Export.gov site: International Trade Scams
United States Export.gov site: Help with Trade Problems

The U.S. Department of the Treasury Office of Foreign Assets Control keeps a comprehensive list of persons or entities with which import/export trade is restricted. The Specially Designated Nationals (SDN) list is an extensive .pdf file with over 400 pages as of October 2009. Because the list includes known aliases among the alphabetical listings, use the .pdf search tool for a comprehensive search.

Top 10 Countries Exporting to the U.S. and Their Products

Let’s take a snapshot of the 2008 U.S. trade balance. Complete statistics can be found at the U.S. International Trade Commission by running the U.S. Trade Partner Report.

We’ve highlighted the top 10 trading partners exporting goods to the U.S., and have listed their top 5 product categories based on dollar volume. These listings can be helpful in narrowing the search for countries that are supplying a product category in large volume. For example, if you’re looking for a key exporting country for toys, furniture and footwear, look to China.

1. Canada
   a. Petroleum oil
   b. Passenger motor vehicles
   c. Turbojets and propellers parts
   d. Plastics and packaging articles
   e. Cell phones
2. China
   a. Cell phones
   b. Computers and laptops
   c. Toys
   d. Furniture
   e. Footwear
3. Mexico
   a. Televisions
   b. Petroleum oil
   c. Passenger motor vehicles
   d. Computers
   e. Medical and surgical appliances
4. Japan
   a. Passenger motor vehicles
   b. Printing and copying machines
   c. Televisions, video recorders
   d. Medical and surgical appliances
   e. Organic chemicals
5. Germany
   a. Passenger motor vehicles
   b. Turbojets and propellers parts
   c. Medical and surgical appliances
   d. Cell phones
   e. Pharmaceutical products
6. United Kingdom
   a. Petroleum oil
   b. Turbojets and propellers parts
   c. Pharmaceutical products
   d. Passenger motor vehicles
   e. Organic chemicals
7. South Korea
   a. Cell phones
   b. Passenger motor vehicles
   c. Machinery parts
   d. Steel tubes and pipes
   e. Petroleum oil
8. France
   a. Turbojets and propellers parts
   b. Pharmaceuticals products
   c. Helicopters, airplanes and satellites
   d. Petroleum oil
   e. Wine and other alcoholic beverages
9. Saudi Arabia
   a. Petroleum oil
   b. Organic chemicals
   c. Sulfur
   d. Fertilizers
   e. Inorganic chemicals
10. Venezuela
    a. Petroleum oil
    b. Organic chemicals
    c. Iron and steel
    d. Sulfur
    e. Inorganic chemicals

>> Get started now! Make your topic selection from the list located under REFERENCE GUIDES in the right column.

We’re giving you the key to unlock trade secrets in the importing industry. The START AN IMPORT BUSINESS reference guides are written for quick reading, so you can get back to doing business. The short topics are loaded with links to dozens of crucial sites that professional U.S. importers and customs brokers depend on every day to be successful. These FREE guides will have you working like the pros in no time.

Whether you are an established business owner looking to source products from overseas, or exploring the importing trade as a new business, the reference guides provide the basic answers used daily by everyone in this global industry.

U.S. Businesses: Be Careful Whom You Trade With

If you operate your global trade business in the United States, you are prohibited from importing or exporting goods from certain countries or trading with certain business entities or individuals. These rules are maintained by the U.S. Customs and Border Protection agency.

As of March 2009, it is unlawful to conduct import or export trade with the following countries:

• Burma
• Cuba
• Iran
• Iraq (certain restrictions apply to trade with this country) 
• North Korea
• Parts of Sudan

Along with these countries, the U.S. Department of the Treasury Office of Foreign Assets Control keeps a comprehensive list of persons or entities from many countries with which import/export trade is prohibited. While not all-inclusive, the Specially Designated Nationals (SDN) list is an extensive .pdf file with over 400 pages as of October 2009. Because the list includes known aliases among the alphabetical listings, use the .pdf search tool for a comprehensive search.

Restrictions and tariff treatments for all countries can be found on the U.S. Customs and Border Protection (CBP) website.

Quotas – Is Your Imported Product Impacted?

An import quota controls the amount or volume of some items imported into the U.S. for a specific period of time. Quotas are established by the U.S. government to bring balance with our trading partners. Some quotas result in preferential treatment in which you will save duty fees, while other quotas may increase duties. 

Three Types of Quotas

• Absolute quota: strictly limits the quantity of goods imported during a period of time.
• Tariff-rate quota: a specified quantity is permitted at a reduced rate of duty during the quota period. Once the quota limit is reached, goods will be entered at a higher rate of duty.
• Tariff preference level quotas: various types of handling based on legislation and trade agreements between the U.S. and the trading country.

Key Factors

Common products that are impacted by quotas include textile products of any kind, agricultural products, and products from certain countries. Once you know the product you will import, some quick research or a phone call to your customs broker will alert you to any quotas to be aware of.

Textile Quotas

All textile imports are governed by quotas. If you’re importing textile items, it’s wise to have a general understanding of the quotas that may impact you and your shipment. For example, in 2008, hosiery items from China reached 93% of the absolute quota limit. If your item may reach a quota limit, you’ll want to adjust the timing of your shipment to arrive before the limit is reached. As of June 2009, absolute quotas exist for textiles from China, Vietnam, Russia, and Ukraine.

Textiles are organized by a category number; with this number you can make sense of the vast array of reports and articles to see if your shipment may be impacted by quotas. Visit the International Trade Administration Office of Textiles and Apparel website for the category listing of apparel and textiles.
 
Other Quotas

The Customs and Border Protection (CBP) website also has a FAQs page to help determine what other types of goods are subject to quotas. The rules can be exhaustive, so save time by knowing your product HTS classification before digging in to the research. For a lesson on using the HTS classification tool, see The Import Channel’s topic “Find Products With Big Profits”.

Or make it easy on yourself, and call your customs broker.

You’ve decided on a product to import. The next step is to locate suppliers. But where in the world do you start?

With a powerful (and free) online tool provided by the Office of Trade and Industry Information from the U.S. Department of Commerce, you can find trade statistics in a matter of minutes.

The excellent online interactive tool, known as TradeStats Express, provides statistical results based on your input of product, dollar volumes, and date ranges. You can also use this tool to review exports leaving the U.S. headed for other shores. It’s a fascinating and fun tool, and it provides global trade statistics with ease.
 
Let’s take the following example: you want to import cut flowers and want to find out which countries are major import sources based on dollar volume. Quick interaction using TradeStats Express (located at http://tse.export.gov/) gave us our answer.

In the TradeStats Express tool, we set the Product flow to “Imports” and changed the Product item to Harmonized System Code HS0603 for cut flowers. After setting our other display parameters we see the following chart:

It appears that the highest volume of imported cut flowers is arriving from Colombia. In 2008, U.S. businesses imported $501,552,000 from Colombia, while in second place was Ecuador, with $134,051,000. The Netherlands came in third, at $60,216,000. We can also see the five-year trend in Colombia’s import numbers is on the rise, while the Netherlands is seeing a loss of imported volume.
 
With these statistics on the cut-flower trade, we can quickly determine which country to focus our energies in for sourcing suppliers.

Along with dollar-volume trends, it’s also important to understand trade and political relationships between the U.S. and the source country. Temporary embargoes are put in place from time to time by the U.S. government, resulting in additional duties on goods arriving from certain locations. Quotas may also be in place, preventing some product categories from being imported after a certain volume is reached. Textiles and garments are often subject to quotas. A quick conversation with your customs broker will give you some direction on quotas and embargoes for your particular product or country.
 
A wealth of information is available online for U.S. imports at the U.S. Department of Commerce International Trade Administration, most of it at no cost.

With Free Online Tools, Find the Most Profitable Products to Import

Want to know how much profit there is on those items made overseas? With a little research using free online tools, you can review the average price per unit of goods being imported into the U.S. We’ll show you how to quickly find a product’s classification code so you can review powerful importing statistics.
 
We’ll use the fresh-cut floral industry for our research. Roses are popular, but how are their profits compared to other varieties of flowers, such as chrysanthemums. Let’s look at the two simple steps to quickly compare the two varieties and determine the average import value per stem for each. We can also see trends in pricing and import quantities.

Let’s Get Started

Step 1: Determine the Harmonized Tariff Schedule (HTS) Classification

First we need to determine the classification code for our products. The United States Harmonized Tariff Schedule contains all the classification codes for goods imported into the U.S. This number is also used to assess duties upon importing. (Note: While this tool is useful for research, it’s recommended you work with a customs agent to provide a final determination of your product’s HTS classification. The discipline of assessing a classification code is complex and takes years of experience to master.)

We go to the United States Harmonized Tariff Schedule website. We enter the first search term “roses” to capture the HTS number, then enter the second search term “chrysanthemums” to capture the second HTS number:

0603.11.0010 – Sweetheart roses
0603.14.0010 – Pom pom chrysanthemums

With these two cut-flower variety classifications known, we can now look at the import trade statistics.

Step 2: Find Trade Data for a Specific Product

The U.S. International Trade Commission website has a wealth of statistical data that can help you explore any product you may consider importing. Best of all, it’s free to use once you set up a user account. Then proceed to use the trade data tool.

We enter our classification numbers and request data on value and quantities, giving us the average price per unit (before duties and custom fees are applied). Here are our results:

Roses: U.S. import average price per stem
2008 – US$0.147 per stem
2007 – US$0.136 per stem

Pom pom chrysanthemums:  U.S. import average price per stem
2008 – US$0.135 per stem
2007 – US$0.136 per stem

What We Conclude From These Statistics

Roses: There is substantial gross profit margin between the retail price per stem we see in the U.S. versus the average price per stem paid by flower importers. A bouquet of a dozen roses on 1-800-Flowers.com sells for $59.99 (including the glass vase), while we find the average price per rose stem of just under 15 cents, or $1.76 per dozen before duties. We also see the average per-stem price is on the rise, increasing 8.60% from 2007 to 2008.

Chrysanthemums: A check at our local grocery store floral stand shows pom pom chrysanthemum stems are selling at $2.99 per stem. To order these through a florist will be much higher. We see the average imported price running 13.5 cents per stem. Again, a nice gross profit margin. However the trend on pricing from 2007 to 2008 is on the decline, although not by much, decreasing by 0.60%.

Even with a substantially lower gross margin per stem than roses, the chrysanthemum is often used in all types of floral arrangements throughout the year. While roses see a sharp sales spike for Valentine’s Day and Mother’s Day in the U.S., the chrysanthemum sells in bouquets consistently throughout the year.

Do-it-yourself Research Along With a Professional’s Input

Conduct preliminary research online with these free resources to narrow down the product categories of interest to you. Once you know the product to import, contact a customs broker and ask that your findings be validated. The broker will become your partner in global trade, and will provide ongoing information about trends, regulation changes, and other important issues that will make a difference on your bottom line.

An Easy Lesson for Clearing Customs: Leave It to the Pros

The steps to clearing customs can be mystifying. We suggest focusing on what you’re good at — sourcing and selling your products – and cut through the red tape by handing this step over to the pro: your customs broker.
 
A partnership with a customs broker is nearly a necessity in the importing business and will save you valuable time and trouble. After reviewing The Import Channel topic Customs Brokers — An Importer’s Best Friend and reading the guidelines below, you’ll find that the easiest thing to do is to leave the complexities to the professionals.

Clearing Customs

All goods entering the United States pass through an entry process governed by U.S. Customs and Border Protection (CBP). There are two key steps to entering merchandise:

1. Filing documents so that CBP can determine if goods may be released into the U.S.

2. Filing documents to permit assessment of duties and gathering statistical data.

There are two types of entries: formal and informal. Whether your shipment can be processed as a formal or an informal entry depends on the value of the invoice and the type of product you’re bringing in. The key difference is the type of documentation and amount of paperwork required to clear the shipment with customs.

Informal Entries

In general, an informal entry is a shipment that does not exceed US$2,000 in offshore invoice value. However, all textile products, including made-to-measure suits from Hong Kong, will be entered formally regardless of invoice amount. Also any item in a classification that’s subject to quotas will also be handled as a formal entry.

You can complete an informal entry yourself without the need for a customs broker. Here’s how it works: The carrier bringing your shipment to the U.S. will notify you that the goods have arrived. You go to the port of entry, let the staff know you are picking up an informal entry, and pay the required duties. That’s it!

If you are unable to do this step personally, a customs broker can act on your behalf to clear the goods. The carrier might also provide this service to you. A quick conversation with either will let you know if they’ll handle it.

Formal Entries

Formal entries are more involved, but working through a customs broker will make this an easy process. Here’s how it works: Approximately three weeks before the expected arrival of your shipment, contact your customs broker. The broker will ask about details of the shipment, such as country of origin, product description (including materials used in its manufacture), quantity, and invoice amount. Based on these details, the broker will complete the required documents. Fifteen days before the arrival date, your broker must contact the entry port and provide these details, which are then entered into a tracking system used by the CBP.

When your broker files the entry paperwork, a surety bond must be posted with CBP to cover any duties, taxes, and charges that will be assessed. A customs broker will often have a large surety bond already in place for his clientele to use. For a small fee, the broker will offer to enter your shipment under this bond as an added service and convenience.

Sample Goods and Avoiding Duties
 
If you are importing sample goods to use to pre-approve a design or to use to solicit orders, you may be able to enter the shipment without paying duty. Be aware that goods are not automatically exempt from duty because they have, for customs purposes, commercial value. For example, in order for samples of textiles to enter duty-free, they cannot be valued at over $1.00 each or must be marked “SAMPLE NOT FOR RESALE,” cut or torn, etc. Rules that determine when samples can enter duty-free are complex. Working with a broker to correctly classify samples can save you time and money when appropriate.

Keep It Simple

If the invoice amount is over $2,000 or the shipment contains any textiles (or other products covered by a quota), leave the formal entry details in the hands of a qualified customs broker. If the invoice is under $2,000 and you are a do-it-yourselfer, you can take care of this step fairly easily. For additional information, you can find an excellent FAQ tool on the U.S. Customs and Border Protection website.

Customs Brokers – Partners for Success

Every product you import into the United States needs to be identified with a tariff classification number. The tariff classification indicates the duty rate you will pay. The classification is also used to review the country of origin, along with the product type, to see if the item is impacted by any quotas or embargoes. Determining the proper tariff number is not an easy task and is best left to a professional who is knowledgeable in this discipline — the customs broker.

Once you have done some preliminary research and know the product you are importing based on profitability, and the country with which you intend to import from, you’re ready to find a customs broker.

Refer to the U.S. Customs and Border Protection (CBP) website to locate a broker. This page provides a listing of all U.S. ports sorted by state. Click Trade in the top bar; then click Locate a Port of Entry under Resources. Select a state, and then a city, and the resulting page will include key port information and key contacts. You will see a link “Brokers: View List” which will give you a great starting point.
 
In a quick phone call to a customs broker, you can explain which item you intend to import, give a description of the materials made in manufacturing the item, and name the country you intend to import from. The broker will assist you in narrowing down a tariff number with relative ease, and there is typically no charge for this phone call.

Customs brokers look up tariff classifications all day long. If they have a relationship established with a business, answering a question like this is quick and part of the service they provide their clients. If you are new to importing, most brokers will gladly assist in your early education for no charge; they see it as an investment to gain your future business.

Import duties, quotas, and embargoes can change from time to time and can have a big impact on how you negotiate your offshore buying price, as well as how to set your selling price. This step should not be overlooked and should be completed before you begin contacting manufacturers — or certainly before you begin negotiating your buy price.

No License Required to Be An Importer

Good news! In the United States, you generally don’t need any special license or training certification to become an importer or start an importing business.

As you complete the paperwork to clear products through customs, you will be asked to provide your “importer number” which will be either your business Federal Tax ID number or your Social Security Number if you don’t have a Federal Tax ID. If you don’t have a Social Security Number, you can apply for an importer number through the local port authority where you will be entering your goods. This importer number is used to identify all your trade activities in the U.S.

Special Licenses or Permits Required for Some Products

Some specific items imported do require a special license or permit from various government agencies; these items include food products; alcohol; plant, animal, and dairy products; prescription medications; trademarked items such as name-brand shoes, handbags, luggage, golf clubs, and toys; and copyrighted items such as CDs, DVDs and tapes.

Contact your customs broker to discuss the product you are expecting to import, and he can easily outline any special licenses or permits which will be required. You can also visit the U.S. Customs & Border Protection website for further information on the types of licenses or permits needed for specific product categories.