Hi, there. So let us talk about the six common mistakes which are made by the exporters while doing export documentation. So in this particular article, my objective is to explain what are the common mistakes which are done in exports documentation? So one by one, we will discuss these common mistakes and what can be the consequences of such mistakes? So these things we are going to discuss in this article.
Friends, the biggest mistake, which is done by the exporters while creating export documents, is giving the wrong information knowingly or unknowingly. So information like – contact details of the buyer especially and sometimes even of the exporters and wrong details of the packing, the markings on the packages or the number of packets, the net weight and gross weight, and some details about the identification of the packages. So mistakes are possible and these are very, very common. And wrong information with regard to payment information. So what exactly are the payment terms? The dates, when we payment has to be made? So in different documents, these kind of mistakes are very, very common.
Then Friends, one of the major mistakes sometimes done by the exporters while making export document is to identify wrongly the classification of the goods. So for customs purpose, the main classification is the ITC HS Code. For example, for Indian exporters, it is the Indian Trade Classifications Harmonized System Code, which has to be put on the documents, especially for the documents which are meant for the customs. On the invoice also, international trade classifications, harmonized system code has to be put. In the case of online filing of the export declaration, any error in this can be really very serious. So even if it is by mistake, there are chances the customs may assume that you have done it intentionally so it can create the distrust between the exporter and the customs, and it may also be categorized as a fraud. So what happens? The consequences can be a delay in customs clearance. It can be fines. It can be some major penalties also. Financial loss will be there for the exporters. And in this wrong classifications, sometimes you land up in a situation when you fail to know if there were any restrictions were there for the export of particular goods and you actually was requiring an export license and because of the wrong classification, you failed to identify this requirement.
So these kind of problems are very, very common. So let us take one example. In this example, Messrs. Sparkle Exports got an order to supply cut diamonds from a buyer in Belgium. Now, the exporter writes in the export declaration, which is filed online to the Indian customs that the Indian trade classification HS Code for the item is a 71051000, which actually is for the natural diamonds. Instead of the correct one, which was supposed to be 71049010, which is actually for the Lab created diamond. Custom tests the goods, and it finds in the physical examination that these diamonds are not natural diamonds, although they are of high quality, but they are lab. created diamonds.
So the correct ITC HS Code was different than what was written by the exporter. So in such a case, what happens is that the customs do not reject the shipment because it was not clear from the LC documents and export contract, which was submitted whether the ordered goods were supplied out of natural diamonds or not, so it was not clear. Nevertheless, customs levied heavy fines to the exporter for mis-declaration because the actual goods were not natural diamonds, they were the lab created diamonds.
So in this case, the documents did not mention about the requirement of the buyer as natural diamond or not. Hence this party managed with some fines. But if the requirement of the buyer would have been for the natural diamond, then it would have come in the category of fraud and it could have led to very serious consequences.
Now, another very common mistake, which is done by exporters while creating export documents, is to write the wrong value. So when you write the wrong value in the export documentation, the general inference of the evaluating authority, assessing authority is that you’re either doing undervaluation or you are doing overvaluation. So errors in value does not match with the LC documents or the database, which is maintained by the customs about the classification provided by you for the product. For such classifications, the customs have the international database of pricing. If the mismatch is huge, the customs will further investigate and try to find out the actual value of the consignment. And it may be declared as under valuation or over valuation, and it may be akin to be declared as committing the fraud, in case there is a major gap. And the consequences, of course, can be the loss of reputation and financial penalties. So these kind of mistakes are very, very common. So these kind of mistakes have to be avoided at all cost.
Now, another very common mistake done by the exporters while creating export documents is giving the wrong product description. So, the product description in the documents should match with the LC description and the export contract or whatever purchase order you have from the buyer, which obviously will be very much matching with the LC description, so it should match with that. The failure to do that could lead to delay in shipments, problems in customs clearance or delay in the payments by the issuing bank, against LC.
Another very common mistake, which is done by exporters while creating export documents is to wrongly and inappropriately filling the dangerous goods form. Because the dangerous goods form has to be filled by a responsible, knowledgeable person who has the knowledge about the product, its consequences if it is in the dangerous category and how to pack it, what are the markings which are required? So a professional person who is in this field has to be involved. So smaller exporters generally make this mistake that they try to do it themselves. It is always better to contact a professional agency for filling out the dangerous goods form. And accordingly, the goods should be packed and they should be fully protected. Right labeling has to be done for such boxes. The very professional work is required for this. So mislabeling of the goods can create havoc and it can lead to the delay in shipments or the stoppage of the shipments. And it can actually lead to a lot of financial losses.
Now, another very common mistake, which is done by the exporters, especially when presenting the documents to the bank for the payment, is to provide the wrong instructions in the covering letter to the bank. So instructions to the negotiating bank either lacks clarity or it is wrong information which spills over to the documents and the covering letter and the instructions sent by the negotiating bank to the issuing bank. So it can also lead to the wrong interpretation by both the banks. If it is not very clear, clarity is not there or it is ambiguous, instruction is not properly made. So sometimes the exporters assume that the instructions are already given there and are inbuilt in the Bank Draft or any other main LC document. So that’s a myth, because generally banks do not go into the bank draft detail, the conditions therein or in the LC documents. Normally they don’t go to that level, so they mostly rely on covering letter.
So in this example, Messrs. Malhotra Exports gets export order of fashion garments to export Euro 55,000 worth of fashion garments to a French party on DA payment basis. So Malhotra exports prepares and dispatches goods by sea to the buyer in France and sends the original documents through negotiating bank in India to the French bank to hand over the documents to the French buyer on DA terms. Plus, he wants the co-acceptance by the French bank, which means the documents to be given to the party, if the French bank that is the the bank nominated by the buyer, accepts the responsibility of nonpayment and is willing to pay in the case of default by the buyer. Now Malhotra exports writes the co- acceptance condition in the Bank draft, but not on the covering letter, and gives these documents along with the covering letter to the negotiating bank.
Now negotiating bank also fails to read the condition that is the co-acceptance condition on the bank draft and sends the same without alerting the French bank on the condition imposed by the exporter or requested by the exporter. Now, the French bank also fails to see the condition, which is given in the bank draft, while handing over the documents to the buyer on acceptance that is on the DA terms. So after the DA period, that is the acceptance period is over, money is not paid by the buyer, as by that time the French party is bankrupt. Now there at that point, French bank also refuses payment to Messrs. Malhotra exports. citing lack of explicit instructions of co-acceptance condition and not taking in cognizance the Co- acceptance condition, which was not clearly indicated by the negotiating bank to the bank nominated by the buyer in France.
So Friends in this case, since the clarity was not there in the covering letter and as per UCP 600, the banks are not obliged to go into the details given in the main documents. And generally they are advised to rely on the explicit instructions in the covering letter, which was missing, and M/s. Malhotra Exports felt that since Bank Draft contains that condition, so there was no need to write this very important condition in the covering letter.
And the result was that the French bank handed over the documents without even realizing that this condition has been requested by the exporter and ultimately the party claimed the goods but did not pay, And by that time, it was supposed to pay, the company was already bankrupt. So there was a huge financial loss for Malhotra exports in this case.
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