What is customs clearance? 6 tips on making the process much easier

When you decide to expand your business beyond the borders of your country, you have to take your goods through the customs clearance process. This process is handled by the Customs Department of your country and the receiving country.

The government authorizes the customs department to implement policies relating to import and export. These policies differ based on country, and as someone looking to move goods across borders, it would help if you familiarize yourself with your country’s international trade policies.

The customs department also collects customs duties and enables shipments into and out of the country. Your country's customs department handles the clearance when the goods leave your shores, and the receiving country's customs department clears them for entry into their own country.

When cargo enters a country, it is warehoused in an area under customs jurisdiction to await clearance, after which it is released. This article details what you should expect from the clearance process and how you can leverage it to make your international shipping more effortless and more enjoyable.¹

What is customs clearance?

Customs clearance is the process of getting permission from the associated government agency to either move goods out of a country (export) or bring goods into the country (import). We can also define customs clearance as a document that the customs authority issues to a shipper. This document typically indicates that the shipper has paid all duties and their goods are cleared for export.²

To get this customs clearance document, your customs declaration document must be available, which lists the goods you have in your cargo, together with the following documents on hand:

• Export and import license that will enable you to move goods seamlessly across borders. As the name implies, the export license allows you to export goods, and whether you need one depends on the type of goods you are shipping.³⁴ The import license will enable you to bring in goods that are restricted, and you have to apply to the licensing authority for both of them.
• Pro Forma Invoice that you sent to your buyers after they confirmed their order. Seeing as the pro forma invoice is an agreement between all the parties involved in the transaction, some countries use it in place of a commercial invoice. For this reason, customs authorities use the information in the pro forma invoice to determine taxes and duties.
• Customs packing list, which includes all the items included in your shipment. When it leaves the port, this list goes with it to help transportation companies to keep track of every item included in your shipment.
• Country of origin, a document issued by you that states where the goods you are shipping are manufactured, processed or acquired from.
• Commercial invoice, which like the pro forma invoice, connects you and your buyers and provides proof of the transaction between both parties. It contains the following information:
• Your name and address
• The name and address of the party receiving the shipment
• The address to which the shipment will be going, if it is different from that of the receiving party
• Customer reference number
• Volume and weight of goods
• The number and date of the invoice
• Terms of sale of the goods
• Terms of payment for the goods
• Currency of payment for the goods
• Quantity of goods sold
• Description of goods
• Unit of measure
• The unit price of the goods
• The total commercial value of the invoice
• The total price of the goods
• Package marks
• Mode of shipment
• Freight insurance details
• You and the buyers’ tax identification numbers and other information
• The incoterm you and the buyers had agreed upon
• Miscellaneous charges
• Certifications

When the customs officer on duty confirms a match of the shipment with the details on the commercial invoice, they then forward the shipment.

• Shipping bill, with which customs officers assess the value of the goods you want to export. The bill is typically filed after the vessel carrying your goods is allowed to move out of the country.
• Bill of lading or airway bill, a receipt that lists the goods in the shipment you are looking to export. The carrier of your shipment issues the bill of lading to you, the exporter.⁵
• Bill of entry, filed by the customs broker, before the shipment arrives at the port. The customs department requires the bill of entry to start examining your load and uses it for the clearance process.

  Customs brokers are agents authorized by the U.S. Customs and Border Protection to assist importers and exporters with their customs issues, an activity called customs brokerage. A customs brokerage firm ensures that you are complying with customs regulations. They can be either private individuals or firms that are licensed by the appropriate government office to handle these issues. Customs brokers help in different ways, one of which is by assisting you with HTS codes.

• Customs Invoice, same as a commercial invoice and has a specific format set by customs authorities. It is part of your customs broker’s responsibility to get the customs invoice form for you to fill out.
• Insurance certificate that provides coverage for losses or damage to cargo while it is in transit⁶. It also helps in the determination of import duty aggregate.

What is the customs clearance process?

The customs clearance involves several steps, and we list them below:

Step 1: Document inspection.

This is the point where all the documents listed above come into relevance. A customs officer will review all the papers, and if they are found to be in order, will begin the customs clearance process.

Step 2: Tax and duty calculation.

Here, it would be best if you had your customs broker's help, as they are responsible for paying taxes and import duties. These taxes are calculated based on the type of goods in your shipment, their declared value, the customs laws of the country to which you are shipping, and the mode of shipping, incoterm you chose.

Step 3: Incoterm choice and payment of taxes and duties

You can choose either a DDU (Delivered Duty Unpaid) or a DDP (Delivered Duty Paid). Customs officials will check which of the incoterms apply to your shipment. If you have paid, your shipment will be marked as DDP (Delivered Duty Paid), which means that your customs broker has paid all taxes and import duties in advance.

If you have not paid these taxes and duties, your shipment will be marked DDU (Delivered Duty Unpaid). If this is the case, the customs officer will transfer the cargo to an independent customs broker to process and collect the payments. In this case, extra fees will apply, such as inspection, storage, handling, insurance, and disbursement.

Step 4: Release of shipment.

As soon as all outstanding taxes and duties are paid, the customs department releases the shipment, and it continues to its final destination.

6 tips on making the clearance process much easier

While the process of clearing a shipment through customs seems straightforward, it can be overwhelming, especially if you are new to export and import. However, the following tips will help make the process smoother and much more manageable:

• Hire an experienced freight forwarding or carrier company

  A carrier or freight forwarding company is the most important gift you can give yourself when you start your exporting business. The ease you will enjoy from having your exports handled by an experienced and reliable freight forwarding company is invaluable. By virtue of their experience, a professional freight forwarder knows everything there is to know about shipping and customs clearance procedures. This knowledge is priceless and will save you from lots of headaches.

• Make sure that your paperwork is complete and 100% accurate.

  Incomplete paperwork or paperwork that has even the slightest mistake can be very costly to you. If there is a mistake in your paperwork or your papers are incomplete, the customs department will not clear your merchandise.

  Instead, it will remain in holding in customs, and you will have to pay holding charges. This is in addition to the fact that there will be delays in releasing your shipment, thus leading to missed delivery dates, causing your business more hassles. Thus, it would be best if you made sure to cross your t’s and dot your i’s with your paperwork. One way to do this is by tasking your freight forwarders or carrier with ensuring that nothing is left out in your paperwork.

• Understand that your shipment will go through customs clearance in every country through which it goes.

  This understanding is valuable when you are deciding which freight you want to ship your cargo through. For example, if you choose air freight, your merchandise will only go through your destination country's customs, saving you lots of time.

• Understand that international trade laws and regulations change frequently

  The import-export market is a fluid one, with its laws constantly changing, so that it can be hard to keep track of things, and the process you followed in the past may not work the next time you use it. For this reason, you should stay abreast of trends in the import-export industry so that you will not be caught unawares.

• Make sure that you pack your shipment correctly.

  It cannot be over-emphasized that you have to pack your shipment properly. Simply put, a properly packed shipment equals a faster customs clearance process. Aside from more rapid customs clearance, properly packed cargo will have fewer chances of getting messed up in transit. Also, when it gets to the receiving port, it will be easier to process the shipment if everything is in its proper place and not turned upside down.

• Ensure that your documents are attached to your shipment in an easy-to-reach manner.

  If the paperwork regarding your documents is easy to reach, customs agents will not have to dig through the cargo to get them, and they will be able to clear your shipments faster.

FAQs

As a new entrant into the import-export industry, you will most likely be interested in knowing all there is to know about the industry in a bid to avoid making mistakes. But, unfortunately, there is a wealth of information available for you at the stroke of a few keys – so many that you find yourself at risk of suffering from information overload.

To combat this, we have collated a list of frequently asked questions to act as a quick-glimpse guide for you and give you easy-to-assimilate answers.

1. Is customs clearance compulsory for every shipment?

   Yes, customs clearance is compulsory for all international shipments of commercial goods. The process is mandatory because it ensures that no illegal or prohibited items get into a country and that the government receives taxes and duties for liable goods.

2. How long does it take for my shipment to clear customs?

   While the customs clearance process appears to have a set of laid-out steps, the reality is that things do not usually unfold at the same rate for all shipments. The time it will take for a load to clear customs depends on the goods in the shipment. Some products may need additional documentation or a physical examination before they can clear customs. However, it can take anywhere from 20 minutes to several days.

3. Can my shipment be stuck in customs?

   Yes, a shipment may be stuck in customs for many reasons, ranging from outstanding taxes to inaccurate paperwork. If you fear or suspect that your shipment is stuck in customs, reach out to your freight forwarder and wait for them to resolve matters for you. A shipment can also be stuck in customs if it contains prohibited items or there are problems contacting the recipient.

4. What if my shipment is not stuck in customs but being held there?

   Sometimes, a shipment may exceed the value allowed and be held at customs until the balance is paid. If your shipment is held at customs, contact the courier company in charge of your shipment. Usually, they will pay the balance and then charge you an administrative fee for handling. Sometimes, a shipment can be held at customs if it arrives at a busy time at the port, and there is a backlog.

5. How long can customs hold my shipment?

   The length of time your shipment spends in customs holding depends on the reason for the holding in the first place. For example, if your load is held at customs because of an unpaid balance, it will only be held until the balance is paid, after which it will be released.

6. Will I pay customs charges for my shipment?

   Most times, customs require charges for international shipments. These charges are typically set by the customs teams in the receiving country, and they base them on the value of the goods in the shipment. Customs rules differ by country; thus, there is no fixed price for the customs charges.

7. Do I need to pay import duties when exporting cargo?

   Import duties are an important aspect of the customs clearance process when a load is entering a country. Before your cargo can officially enter the importing country, it has to undergo import clearance, and one of the requirements for import clearance is the payment of import duties. Every country imposes import duties because it is a great way to generate income for them, and the amount is dependent on the importing country. Your customs brokerage firm can handle this for you.

8. Must I use a customs broker?

   You can choose whether to use a customs broker. However, with a customs broker, the customs clearance process is simpler and faster. All you need to do is to engage the services of a customs brokerage firm and have them transact with customs officials and handle all the issues for you, including payment of duties such as export and import clearance.

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