The U.K is among the world’s top ten countries in terms of exports and attracts investors from the EU, the U.S., and many other countries across the world. The U.K exports most of its commodities to the EU, U.S., and Asia. The Middle East and Australia also form important export destinations.
If you are a drop-ship reseller based in the U.K. or want to export to the U.K. markets, you need to be aware of regulations, requirements, and best trade practices. International trade involves paperwork, particularly if you deal in high volumes. Drop-ship resellers are spared many stresses of international trading because the supplier takes care of the paperwork and other issues. However, the reseller should be aware of international drop-ship requirements and how they can impact their business.
The supplier should have a contract with the buyer if selling in high volumes. The contract should be written, and it must be signed by both parties. One of the main purposes of having a contract is spelling out the roles and responsibilities of each signing party. This includes cost breakup, payments, and how to calculate liability for insurance. As a reseller, you should sign a contract with your drop-shipper. The contract should cover destinations, logistics, insurance, duties, and customs requirements. Without these terms clearly stated, you run the risk of disputes, lawsuits, and losses. In addition to a contract, the reseller must also investigate the following:
1. Import license: If your supplier is located in another country, you will need an import license for bringing their products into the U.K. Licensing norms depend on the type of product imported and the originating country. Importing food items, for example, has certain additional requirements that import of bead jewelry does not have.
2. Export license: If your supplier is located in the U.K., they need to have an export license. Like import licenses, an export license defines the type of products you can export and the destination countries.
3. Declaring exports to customs: Joining the EU has simplified trade among member countries. You can export within the EU with minimum documentation. The reseller does not have to declare the export goods when trading within the EU. However, you are required to report the transaction via the New Export System if you are exporting products to non-EU destinations. When signing the contract with your supplier, discuss who is responsible for declaring the transaction to the customs department.
4. Inspections: Inspection of the consignment is carried out by an independent agency to verify that the goods named in the packing list are indeed going onboard.
5. Insurance: The suppliers need to file an insurance certificate to export or import products.
6. Receiving port: The supplier must fill out different forms when hiring the services of a shipping company for overseas export. The Standard Shipping Note is a list of instructions to the receiving port. It advises the port authorities how your shipment should be treated, lists the items carried, and provides instructions on handling, storage, and forwarding. Dock and warehouse receipts are important requirements for unloading and storing goods.
7. Shipping company: The Export Cargo Shipping Instruction notifies the cargo company about the type of item they are carrying and how they should be handled. A properly drawn out Shipping Instruction prevents damage to the goods and danger from improper packing, loading, storage, and unloading. A consignment note refers to a list of items being shipped, and the exporter is required to provide that in addition to instructions on how to handle cargo.
8. Lading notification: The shipping company will provide a list of items they received from you or the supplier. This is proof that you had shipped the items.
9. Consul’s permission: Check if the destination country allows imports without a note from their consul in the originating country. If not, you will need to get a letter from their consul in the U.K. allowing the goods to be sent to the buyer country.
10. VAT/duties: To bypass taxation and duty requirements at the destination, request an import certificate that allows the speedy distribution of the goods on payment of a security deposit.
11. Payment: Resellers usually pay suppliers through online payment methods or wire transfer. For greater volumes of products, they may sign a documentary collection with a local bank, after which the shipped products are handed over to them (or sent to buyers). Online payment is discussed in detail in the following section.
For small business such as wholesale resellers, international payment procedures would be difficult without online financial transactions. Traders in the U.K. need to focus on four aspects when outlining a payment mode in their business plan.
1. Payment method The competition within the drop-shipping business is so tough that you cannot afford to have a restricted payment policy. If your rivals offer easy payment options, you have to do the same to maintain competitiveness. Online funds transfer websites such as PayPal are the most popular tools for sending or receiving B2C payments. Wire transfers are a preferred option as well, but the possibility of fraud in wire transfer is greater. Credit card payment is also popular, particularly because it allows direct payment without involving third-party transfer. Having an integrated ordering and payment policy is important. Many customers would rather order as well as discuss payments over phone.
2. Currency and currency exchange Currency conversion can be difficult if you are a small trader with many international customers. Merchant sites such as eBay and payment facilitators like PayPal fortunately offer the option of accepting cash in the currency of your choice.
3. Bank transaction When dealing with multiple customers in a particular country, having a bank account in the destination country eases financial transactions. The bank can stand in as guarantor or be authorized to release and accept payments from customers not comfortable or familiar with online payments and long-distance funds transfers.
4. Protection from payment-related crimes One of the reasons more people are not conducting payment transfers online is the high degree of risk perceived to be associated with such transactions. Hacking, phishing, and password and identity theft can harm not only the customer but also the trader, whose negligence is held responsible for the loss. The trader needs to provide a safe environment for online financial transactions. This includes an SSL-secured website, customer verification, and software to detect unauthorized activity on the site.
Licenses and Intellectual Property
Resellers and wholesalers must discuss the ownership of the proprietary product during the negotiation stage. In a drop-shipping arrangement, while the wholesaler or manufacturer supplies and ships the product, the return address on the shipment is always that of the reseller. The brand name belongs exclusively to the manufacturer. A manufacturer may refuse to service customers in countries without an intellectual property protection system. In countries that have this system, the manufacturer or owner of copyright has to register the trademark and product. Because drop-ship volumes are often low, resellers may not understand the importance of trademark registration in a country with only a few customers. However, a good design or idea can be easily copied and sold in other countries unless the manufacturer has taken care to protect their intellectual property.
This deprives the manufacturer of profits and can indirectly impact the reseller as well-if the customers shift to imitation products, it could ruin your business. Make sure that the products you sell are genuine; if you are caught selling imitation products by the rightful owner of the design, it could mean loss of reputation, fines, trade restrictions, and even prison for you. Unlike most wholesale resellers, drop-ship resellers do not hold a license to sell products on behalf of the manufacturer. They instead source products from the distributor, who holds a distribution and marketing license. Therefore, it simplifies the drop-ship trader’s business. However, if you are sourcing products from a wholesaler or distributor, make sure they hold the license to distribute the product.
Otherwise, you would be selling products in violation of intellectual property laws. Small manufacturers may need to be gently persuaded to sell products to international customers, particularly if they have thriving local operations. If you want to expand business, you will need to cooperate with suppliers to expand your operations. First, the manufacturer needs to apply for a trademark in the destination countries. For trademark holders in the U.K., there is no need to apply separately for trademark registration in different EU countries-a single application through the Office of Harmonization of International Markets is enough. Outside the EU, trademarks are registered by the World Intellectual Property Organization.
A reseller’s role in the partnership with wholesalers is that of a marketer. He or she finds new customers and persuades them to buy the supplier’s products. In return, the supplier offers products to resellers at wholesale prices. Therefore, your earnings depend on how well you market the product. A good marketing strategy is an important part of the drop-ship business.
1. Study the demand-supply scenario: Is there a market for your products? Can you offer what your competitors cannot? Are people willing to pay higher prices for your products? This research will also help you identify potential suppliers in the new market.
2. Adapt to cultural differences: Outside the EU, cultural differences can look intimidating to the inexperienced reseller. Read up as much as possible on the destination countries. If you have a good grasp of cultural nuances, you may end up getting more customers and repeat orders.
3. Look into the issue of replacement and refunds: If you live in the U.K. and your customer is located in the Middle East, he or she may not like to ship the product all the way to the U.K. for replacement. It is always sensible to have a local partner in that country for troubleshooting small, niggling issues that can snowball into major problems if you have to handle them long distance.
4. Affiliate with reliable service providers: Besides a local representative, you also need trustworthy partners for shipping and delivery. Fortunately, there are many good shipping companies operating in the U.K. with operations across the world. If you contact the U.K. office of your favored shipping company, they will put you in touch with their international offices. Drop-shipping requires proper planning if you want to turn it into a source of full-time income. Testing the waters in the international market is one way to expand business. It will also help you rise above competition. Due to the recession, the U.K. market has had lower profitability than in years prior to 2008. Government as well as private spending has been low, affecting many businesses negatively. Taking business to new markets can help resellers cope with the recession.