Export Management & ICC Incoterms
MODULE 5
Freight Finance
Agency vs. Invoicing
+
Methods of Payment for the Exporter
Student Study Aid
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Lesson Plan – Agency vs. Invoicing
Sessions Outcomes (Student Enablement)
1. Freight Finance
• 1.1. Introduction to Role Players
for Exporters • 1.2. Introduction to Fundamental Financial Concepts in Freight
2. Interest Forwarding
• 2.1. Example of Interest Lost
3. Invoicing • 2.1. Example for Interest Payable
• 2.2. Steps for Interest Calculation
• 3.1. Perform invoicing operations 3
• 3.2. Statement of Account + Reconciliation of Transactions
• 3.3. Gather Information
• 3.4. Support Vouchers
• 3.5. Querying Missing Information
• 3.6. Generate Vouchers for Costing
• 3.7. The Double-entry-principle
• 3.8. Freight Charges & Costs
Lesson Plan – Agency vs. Invoicing
Sessions Outcomes (Student Enablement)
4. Methods of • 4.1. Introduction to Methods of Payment
Payment for • 4.2. The Bank Documentary Process
Exporters • 4.3. Forward Exchange Contracts
• 4.4. Exchange Rates
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1. Freight Finance for Exporters
• 1.1. Introduction to Role Players
• 1.2. Introduction to Fundamental Financial
Concepts in Freight Forwarding
• Expenditure vs. Disbursements
• Revenue
• When Customers don’t pay on time
• Consequences when customers don’t
pay on time:
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Introduction
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The International Supply Chain Features 1
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Start to Finish: Where-2-Where 6
8 2
3
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My Study Notes
Overview of the Role Players
1. The Buyer / Importer 9. Carrier Releasing Agents
2. The Seller / Exporter
3. The Banks 10. Warehouse & Depot Operators:
4. The Freight Forwarder & Customs Broker
5. The International Carrier • Free Stores
6. Customs Authorities • Bond Stores
7. Port Authorities & Terminals • Rebate Stores
8. Other Statutory Bodies: 11. Transporter / Hauliers:
• Carrier Haulage
• ITAC | NRCS
• Port Health | State Vet | Plant Inspector • Merchant Haulage
• SAPS | CITES • Cartage
12. Inspection Agencies
• Verification Services | Cargo & Marine
Surveyors
• PPECB
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My Study Notes
Introduction to Fundamental Financial Concepts in
Freight Forwarding
Expenditure vs. Disbursements:
In terms of freight forwarding and customs clearing, examples of expenditure
may include the following:
General Expenditure:
• Office rental and operating expenses
• Salaries to be paid to staff
• IT services such as computer clearing and tracking program packages
Disbursements (Recoverable):
• Payment to 3rd party service providers such as airlines, shipping lines,
ports, or hauliers
• Payment of customs deferment (duties and VAT)
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My Study Notes
Introduction to Fundamental Financial Concepts in
Freight Forwarding
Revenue:
In terms of freight forwarding and customs clearing, examples of revenue may
include the following:
• Sales of goods / Services / Billings (agency fees, documentation,
communication fees)
• Facility Fees (finance fees, disbursement fees or interest on disbursements
/ money outlays)
• Agent’s commission
• Sales profit like mark ups on freight or transport costs
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My Study Notes
Introduction to Fundamental Financial Concepts in Freight
Forwarding
When customers don’t pay on time:
One important aspect with Debtors, is the term Days Sales Outstanding (DSO) It is measured how
many days on average does it take to collect the monies due on that invoice.
There are several reasons why we don’t collect from the debtors in time: 15
• They may not be creditworthy
• They do not have the statement and invoices
• There might be queries on their invoices:
o Wrong rates used
o Errors on tariff headings and duties (clearing)
o Questioning rate of exchange
o Communication problems
o Estimated cost and actual cost are different
o Service failure (not delivered on time or delay in process)
• Freight charges wrong - not invoiced the customer as per the House Air Waybill and Ocean
freight charges.
My Study Notes
Fundamental Financial Concepts in Freight Forwarding
Consequences when customers don’t pay on time:
Credit notes have to be generated to rectify and reduce charges on the
original invoice. It will be in any organisation’s interest not to generate credit
notes as this reflects bad management of costs and invoicing.
Under-recovery of funds means that the freight forwarder outlaid money to a
3rd party (disbursement) but due to the customer not paying, this cost has not
been recovered and the freight forwarder has lost money for a service
rendered.
Late payments have an extremely huge effect on NO
the cash flow situation. CASH!
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My Study Notes
2. Interest
• 2.1. Example of Interest Lost
• 2.1. Example for Interest Payable
• 2.2. Steps for Interest Calculation
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Interest:
Interest Lost
Interest Gained
Interest Charged
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Example of Interest lost:
In this instance the invoice was due for
payment on the 30th of April, but the client
had a query and held back payment.
The time it took to resolve the query in
order to get payment meant that the
Agent has extended the client’s credit.
Instead of 30-days, it was extended to 60-
days due to late payment end May only!
The Agent lost interest on his bank
overdraft from the time of disbursement,
18 April, until payment was made (end
May)!
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My Study Notes
Fundamental Financial Concepts in Freight Forwarding
FORMULA for the interest payable calculation:
(Amount outstanding or borrowed) x (Interest Rate ÷ 365 days) x number days
outstanding or credit
Please note, the aforementioned formula is exactly the same when
calculating the Agent’s Finance Fee which is linked to the Bank Prime Lending
Rate plus the Agent’s mark-up percentage (i.e. Prime is 10% + mark-up of 2%,
therefore Agent’s Finance Fee = 12%)
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My Study Notes
Fundamental Financial Concepts in Freight Forwarding
Steps for the interest payable calculation:
Amount borrowed: : R 15 500
Payment period: : 35 days
Interest rate : 12.5%
Step 1: Work out the interest over one year
(R 15 500 × 12.5%) = R 1 937.50
Step 2: Work out the interest per day
R 1 937.50 ÷ 365 days = R 5.31
Step 3: Work out the amount of interest payable for the payment 25
period
R 5.31 × 35 days = R 185.85
My Study Notes
3. Invoicing:
• 3.1. Perform invoicing operations
• 3.2. Statement of Account + Reconciliation of
Transactions (the Double Entry Principle & Freight
Charges & Cost)
• 3.3. Gather Information
• 3.4. Support Vouchers
• 3.5. Querying Missing Information
• 3.6. Generate Vouchers for Costing
• 3.7. The Double-entry-principle
• 3.8. Freight Charges & Costs
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Invoicing:
Perform Invoicing
Operations
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Perform invoicing operations
Whenever a shipment
occurs you need to
remember that for every
step of the trade cycle
(aka referred to as
transport / freight legs),
there will be a cost or
charge for work done or
services provided by the
role players in this cycle.
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My Study Notes
Perform invoicing operations
Process of invoicing:
The ocean freight invoicing process:
Gather expenses/costs from 3rd Gather expenses / costs from Invoice the importer / exporter:
parties such as: services provided by own
organisation: • Compile all charges on
invoice
• Shipping lines (Bills of lading • Agency commission
• Make sure charges are
• National Ports Authorities • Documentation fee categorized under
disbursements, forwarding &
• Customs (SARS) • Forex fee clearing charges & Customs
charges
• Haulage/ Transporters • Finance fee
• All charges must be visible to
• Depots • Communication fee importer/exporter
• Terminals (storage) • Any special charges
• Any other agent costs
involved
• Special equipment /
specifications
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My Study Notes
Perform invoicing operations
Process of invoicing:
The air freight invoicing process:
Gather expenses/costs from 3rd Gather expenses/costs from Invoice the importer/exporter:
parties such as: services provided by own
organisation: • Compile all charges on
invoice
• Airlines (air waybills etc.) • Agency commission
• Make sure charges are
• Customs (SARS) • Documentation fee categorized under
disbursements, forwarding &
• Haulage/ Transporters • Forex fee clearing charges & Customs
charges
• Bond-store • Finance fee
• All charges must be visible to
• Any other agent costs • Communication fee importer/exporter
involved • Any special charges
• Special equipment /
specifications
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My Study Notes
Perform invoicing operations
Identify The Steps of the Accounting Cycle:
Collate
1. Transaction taking place
Journal 2. Recording of transactions in journals
Post 3. Post to general ledger
4. Reporting in financial statements
Report 5. Analysis and interpretation of the statements
analyse 6. Decision making by management
decide
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My Study Notes
Gather information for effective process execution
In order to understand the gathering process, we have to identify some
core elements such as:
• Identifying the various documentary elements
for cost purposes
• Identifying the various cost factors for both
import and export shipments
• The collating process for costing and invoicing
purposes
My Study Notes
Gather information for effective process execution
Identifying the various documentary elements for cost purposes:
The whole process when gathering information is set around three logistics
criteria, which in turn are set against three documentary criteria, namely:
The Logistics Criteria The Documentary Criteria
1. The country of origin (collection) 1. Documentation For Forwarding
2. Carriage (origin to destination) For Carriage
3. The country of destination (delivery) For Delivery
2. Communication Importer to Agent
Agent to Exporter
Agent to Importer
3. Information What, When, Where,
Why, How and Cost
My Study Notes
Gather information for effective process execution
Explaining the various documentary elements for cost purposes:
Documentary Criteria → Resulting Logistics Criteria Desired Outcome
1. Origin (collection) 1. Origin (collection) 1. Origin (collection)
• Export Forwarding & Clearing
• What, when, where, why, how: • Cargo is collected and delivered
Instruction Identifying the requirements to to the point or place of exit.
• Cargo Booking move cargo.
• Customs Clearance 2. Carriage (int. freight)
• Transport Order • Handover cargo at the default
2. Carriage (int. freight) point (as in transfer in risk and • Goods are placed on board for
• Waybill / Bills of Lading liabilities) carriage.
3. Destination (delivery)
• Import Clearing & Delivery 2. Carriage (int. freight) 3. Destination (delivery)
Instruction • Carriage from origin to • Goods arrive at destination.
• Customs Clearance (SAD500 / destination.
• Customs cleared and delivered to
CD1 + SARS Release / CN1) 3. Destination (delivery) Importer.
• Permits and / or Certificates
• Cargo Dues Order (ocean) • Placement of cargo at terminal • Shipment costed and invoiced to
• Transport Order client.
• Collection of cargo from terminal
• Client establish landed a cost.
• Delivery of cargo to Importer
• Client can sell goods or
manufacture other goods
My Study Notes
Support Vouchers
These are documents supporting a specific invoice from a specific service provider / third party
Support vouchers are therefore information documents and they should be consulted to check on:
• Whether the proper instruction were followed,
• Collection dates and times,
• Number of items / parcels,
• Condition of parcels when collected and condition of parcels when delivered to the carrier,
• Weights,
• Dimensions,
• Nature of cargo vs. packaging and packing requirements,
• Delivery dates and times, and
• Rate charged by the service provider / third party operator.
• Support vouchers are therefore collated with each specific invoice for each specific transport
“leg”, i.e. from forwarding, to carriage, to clearing and final delivery.
My Study Notes
Support Vouchers (continued)
Other Support Vouchers:
• Customs Entries
• Transport Documents / Collection / Delivery Notes
• Carrier Waybills, Bills of Lading and Consignment Notes
• Commodity Certificates
• Certificates of Origin
All of the above could relate to charges or costs generated by third parties and as such, should be
invoiced back to client. This forms part of the collating process (gathering information) for invoicing
purposes.
My Study Notes
Querying missing or incorrect information
• The Freight Forwarder could have omitted the Transporter’s collection and delivery fees
simply because the latter party’s invoice was not in hand at the time that the Forwarding
Agent did his invoice.
The error committed here was that the Freight Forwarder should have had a copy of the
Transport Order in his / her file and upon seeing this, should have queried the Transporter.
• Or, it is possible that the rate charged by the Freight Forwarder for collection and delivery
fees were different to what the Transporter charged on his invoice.
This happens quite often and here the Freight Forwarder should have consulted his Rates
Agreement Contract with the Transporter and queried the difference with the Transporter.
My Study Notes
Generate Vouchers for Costing
By generating vouchers we refer to costing sheets to provide information on landed costs,
or costing sheets for invoicing purposes.
• In terms of costings for invoicing purposes, this could eliminate most errors pertaining to
omitted charges, incorrect rates used, or passing incorrect invoices only to credit those
and pass subsequent new or corrected invoices, supplementary invoices or credit notes.
• It is also a way for agents to book their charges to the correct General Ledger Code,
which in turn will distinguish between disbursements and revenue, hence giving a final
profit / loss margin obtained for each specific shipment / file.
Booked to General Ledger
My Study Notes