Crossborder Selling: What Small & Mid-Size Businesses Need to Know
Part One: International Trade is More Complicated Than Selling Domestically
Crossborder selling has become easy enough that small and medium-sized businesses from every corner of the economy want to take advantage of the global marketplace. According to research recently published by DHL Express, crossborder online retail is predicted to grow at twice the rate of domestic ecommerce until 2020.
But for small and medium-size businesses with limited international experience, what they don’t know about complying with crossborder regulations can end up creating nightmare scenarios for them and their customers. This three-part series will lay out the challenges, provide some critical lessons learned, and reveal how businesses can overcome the challenges and enjoy global selling success.
It used to be that only bigger companies could afford to hire the expertise required to navigate the complex rules and regulations involved in global selling. Today, however, crossborder selling has been made to feel almost effortless by a variety of affordable solutions, including ecommerce platforms and marketplaces, omnichannel fulfillment options, sophisticated payment and translation solutions, and an abundance of fast and easy shipping services. This can make the idea of having an ever-expanding customer base and a rapid increase in revenues irresistible.
As soon as a business sends products across borders, however, it will face significant crossborder transaction tax compliance obligations. For example, a customs duty may be levied when the shipped products clear customs into the destination country if the order exceeds that country’s value threshold. If businesses want to understand the total cost of the shipment to reach the customer’s doorstep, they must be able to assign the appropriate duty rate to each item in the shipment, and they must be able to calculate the correct tax amount by applying the specific tariff code(s) for each item based on the Harmonized Commodity Description and Coding System.
Imported goods may also be subject to other taxes, such as a Value-Added Tax (VAT) or a Goods and Services Tax (GST). To further complicate all this, the US has many regulations governing exports, and all the destination countries will have their own import regulations.
Without fully understanding the relevant import/export regulations, businesses cannot know with certainty what they are actually allowed to ship to specific countries. And without being able to calculate the appropriate customs duty and import taxes, businesses cannot accurately calculate the “landed cost” of a shipment. The landed cost is the total cost of getting a shipment from a shipping facility in one country to a buyer’s door in another country. This includes the cost of goods, total shipping and insurance costs, and the applicable customs duty and import taxes.
Calculating the landed cost for just a single multi-item shipment to one country can be extremely complex, and if a business cannot accurately calculate landed cost, how can it properly charge its customers? Or, if a business leaves the customs duty and import taxes for its customers to figure out, customers will be less likely to buy because they won’t know how much the products will really cost them when they order them from a website. Not having answers for these questions can seriously impact the customer experience, causing customs delays that can lead to additional fees, surprise costs, rejected shipments, and frustrated customers who may trash a business via social media and likely never return to shop again.
In a recent survey of 281 merchants by Amber Road and the American Association of Exporters and Importers, nearly a third say they have suffered delays and fines from regulatory agencies, such as customs authorities, because of compliance-related oversights. Another 24 percent said they were concerned about such penalties leading to fines and shipment delays. Even experienced exporters see challenges in international trade.
In order to experience long-term success at crossborder selling, a business must be able to understand, comply with, and financially account for import/export regulations and customs duty and tax costs. This leaves businesses with another important decision: who will remit the custom duty and taxes, the merchant or customers? And how can a business ensure the obligation is accurately calculated? Who in the organization has the time and expertise to do this painstaking work? What other options are there?
The reality of global selling is that merchants can’t just put something in a box and send it to another country. But that doesn’t mean a business should drop the idea and let others reap the benefits! In the next article in the series, I will share some specific examples of crossborder selling challenges and the lessons we can learn from them.
Amy Morgan is a senior product manager for global trade solutions at Avalara. She has managed crossborder compliance for companies ranging from startups to Fortune 500. She is motivated by simplifying import/export problems.
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