A Guide To Setting Up A New Export Business
Indian SMEs can gain a tremendous advantage by diversifying into exports. If you manufacture a world-class product and are capable of meeting stringent quality requirements, selling to overseas buyers can give your sales and profits a great boost.
SMEs are an important contributor to the country’s exports. Their share has been growing in recent years and has climbed from 42% of total exports in 2013–14 to 45% in 2014–15 before reaching the 50% mark in 2015–16.
Which product should you export?
Ideally, you should select a product that you already manufacture or are familiar with. Of course, you should ascertain that there is a demand for this in your target country.
But it is entirely possible to branch out into a new field when you promote your export business. Just remember that you will have to take out the time to learn about your chosen area of operations and gain the required level of expertise.
Regulatory requirements
Your export business can operate as a sole proprietorship, partnership, or limited company. You will also need a dedicated bank account. When you open one, you should ensure that your bank has the competence and experience to handle foreign exchange transactions. It will be worth your while to spend a little time with the dealing officer to familiarise yourself with the procedures connected with export transactions.
There are three crucial regulations that you must comply with:
Ø PAN card — this is a unique 10-digit alphanumeric identity issued to each taxpayer by the Income Tax Department. If you don’t have one for your business, you should apply immediately.
Ø IEC number — every exporter requires an “Importer Exporter Code Number” (IEC). This is issued by the Director General of Foreign Trade. You need to apply only once as your IEC registration is valid for an unlimited period of time.
Ø RCMC — your application for a “Registration Cum Membership Certificate” (RCMC) should be made to the Export Promotion Council/Commodity Board/Development Authority who handles the product that you will be dealing with.
Financing your export consignment
When you are selling to a customer who is located thousands of miles away, you need to take special care about getting paid for the goods that you ship. Most of your clients will not pay in advance.
One way to meet your working capital requirement is to tie up an invoice factoring facility. You can get an upfront payment from the factoring company within a matter of days of shipping the consignment.
Making a success of your export business
Exporting your products to overseas markets can be very lucrative. However, you need to be especially careful when dealing with buyers in other countries. Ensure that your products meet the buyer’s specifications and that you adhere to your committed timelines.
It may take some time to establish yourself, but once you have built your reputation, it will be possible to expand rapidly.
About Drip Capital
Drip Capital is a trade finance company headquartered in California, USA. We offer finance to Indian exporters selling to buyers in North America, Europe, Middle East and Asia Pacific. Established in 2014, Drip Capital has built a strong presence across India having financed hundreds of shipments across industries such as textiles and garments, packaged and frozen foods, metals and engineering goods. With focus on SMEs, we have provided our clients timely access to working capital and helped them grow their exports by as much as 60% in less than a year.
