Nigel McWhirter, who manufactures bagpipes in the Scottish village of Bishopbriggs, was thrilled.
He had just received a rush order for 100 sets of bagpipes from the Royal Scots Dragoon Guards, who were replacing aging instruments its band had used for 25 years. To get production started quickly, McWhirter placed an order for 400 pounds of ebony (the wood used in the bagpipes), but when it came time to pay, the Tanzania-based supplier for the wood said there was a problem.
The supplier needed at least several days to figure out the value-added tax (VAT), freight and customs tariffs for the delivery. McWhirter was upset that a company claiming to sell internationally could not quickly get a handle on those key details.
As a result, McWhirter was forced to abandon the order, and in doing so, not only left money on the table, but also joined a long and unfortunate list of frustrated international buyers (and sellers).
A Growing Problem
International trade is bigger than ever. Whether you sell books, business equipment or bagpipes, your customers can just as easily be in New Delhi as in Detroit, since B2B and B2C cross-border ecommerce are flourishing.
According to a recent survey of online shoppers by Forrester Research, 82% of respondents report buying from a merchant outside their home country, but 35% said cross-border duties and taxes were a concern. Major retailers and global delivery firms can afford big-system solutions, but while consumers increasingly shop and buy internationally, small- and medium-sized e-merchants often struggle with the complexities of calculating duties and taxes (including VAT), the cost of goods sold, and shipping expenses. Classifying all products in a transaction with the appropriate tariff codes is complex and difficult, and that task is nearly impossible for smaller players to handle in real time.
Unfortunately, when a merchant fails to generate a real-time invoice at the time of an online sale, the cascade of downstream pain can be very real. While regulatory authorities assess fines or penalties, or worse, seize inventory, angry customers who abandon or reject products leave the orders locked down in customs and seldom buy again.
The term “landed cost” refers to the total cost of selling from point A to point B. It is used most frequently when describing international shipments, and includes the basic cost of goods, door-to-door shipping, and all import and export customs duties and tax obligations. Those obligations vary significantly between states, provinces, regions and countries.
Tracking the landed cost-related losses is difficult, but it is certainly in the billions of dollars per year worldwide. That’s a lot of bagpipes!
Few small or growing e-merchants have the resources to solve the landed cost puzzle. Fortunately, due to technology, they no longer have to worry about this. A new generation of cloud-based tax compliance products links directly to merchants’ ecommerce systems, ensuring that cross-border tax and duty obligations are calculated in real time for any product and any location.
Today’s most flexible, affordable cloud-based applications allow small- and mid-market e-sellers to determine duties, taxes, cost of goods sold and shipping costs for virtually any international transaction.
Industry experts say that a robust landed cost solution should address several key requirements, including capabilities for tariff (including harmonized system code classifications), as well as customs duty rates. And e-merchants should be able to use the landed cost system to quickly and easily calculate the taxes, tariffs, customs duties and transportation fees associated with international shipping and delivery of products.
The best of these next-generation systems are truly comprehensive, providing duty rates for item and country combinations, and covering all relevant geographies, in addition to leveraging simple API-interfaces to integrate seamlessly with widely-used ecommerce, accounting, invoicing and enterprise resource planning (ERP) systems.
Sellers should be able to flow correct rates into invoicing systems, and access calculated landed cost estimates and duties. The landed cost content engine generates a correct duty rate automatically and forwards that number to the seller’s shopping cart. A still-emerging generation of cloud-based solutions offers always-on convenience, while reducing the friction and headaches associated and compliance risk. To ensure accurate and current information on tax-related costs, companies should look for a solution that is continuously updated.
Landed Cost = Music to Your Ears
Consumers and sellers worldwide benefit from fast, accurate and convenient transactions. While taxes and duties cannot be avoided, there is a way to simplify landed cost calculations.
Today’s automated, cloud-based solutions make tax compliance automatic and transparent. They give buyers and sellers a complete and final tally, including cost of goods, shipping, and all taxes and duties. By solving the landed cost challenge, these technologies help prevent fines and penalties, rejected shipments, and angry or lost customers.
They also unlock the possibility of international trade for small- and mid-market ecommerce merchants worldwide. As a result, neither your transaction nor your bagpipes get stranded at the border.