Customs clearance is a crucial step in international trade, ensuring that shipments comply with local regulations and safeguard a nation’s economic, health, and security interests. As we have explored in previous articles, international trade involves extensive and complex paperwork, making efficient documentation management a necessity for modern customs brokers and importers.
As businesses navigate tariffs and change international regulations, it’s essential to understand the customs clearance process, pick a suitable customs brokerage to work with, audit them consistently and ensure they create and hold the right documentation. That said, the existing manual documentation management process is afflicted by several systemic gaps, which pose operational and commercial challenges. These challenges arise from the multiplicity of jurisdictions, as well as the magnitude and variances in documents required for each commodity and country. Additionally, they include issues such as information being shared in different formats, the unstructured nature of data, manual processing and associated accuracy problems, and non-automated workflows.
In this article, we will see the impact of sub-optimal documentation management practices on customs brokers and importers, as well as the broader supply chain, and discuss best practices for implementing a good document management system.
Challenges With Poor Document Management in Customs Business
1. Higher probability of errors while processing and preparing documents
Due to the manual nature of the documentation management process, there is a lack of standardized formats as information is being shared in different modes and languages. This results in the majority of data being unstructured, and with all the crucial detailed information, the probability of errors is higher while documenting them.
2. Delays in submitting documents and information to customs
Due to challenges in processing data and preparing documents manually, it is quite common to see delays in submitting the stipulated documents to Customs.
3. Delays in customs clearance
Errors in documentation or delays in submitting information can cause delays in customs clearance, with the customs department holding the imported goods until the errors have been rectified and all requisite information submitted.
4. Penalties for non-compliance
Customs regulations prescribe monetary fines and other penalties to be imposed on the non-compliant party. Depending on the magnitude of the violation, the penalties can be extremely severe (to act as a deterrent in the future).
5. Incurring additional costs
Delays in customs clearance result in the incurrence of additional costs and hidden fees towards storage, detention, and demurrage. These costs can add up rapidly, as the container is tied up and goods occupy storage space beyond the free time granted.
6. Delayed sharing of information
Poor documentation management lends itself to delayed information sharing with other stakeholders, like reporting on milestones in the transport process. This information is generally necessary to plan transport activities in advance, wherefore delays herein can cascade downstream and result in the imported goods being delivered to their final destination after the scheduled delivery dates.
7. Reputational loss
Customs brokers can face reputational loss as delays in cargo delivery and higher costs caused by poor documentation management reflect poorly on their expertise and efficiency.
8. Manpower spent auditing, following up and rectifying errors
Once a procedural or documentary error is committed, rectifying it involves more human resources and costs than were initially estimated. To prevent this audits are often conducted but they are also manual, time consuming and in some cases subjective.
Impact on Overall Supply Chain Operations
The fallout of poor documentation management practices is felt in the overall supply chain as well, in the following ways:
1. Higher costs and TCO
Delays can lead to avoidable detention and storage costs and various fees, adding to the overall Total Cost of Ownership (TCO).
2. Prolonged delivery times
Delays in customs clearance and international shipping add to the total delivery times, resulting in the actual transit times exceeding what was initially scheduled, which in turn disrupts the timelines for all subsequent activities in the supply chain.
3. Affects supply chain reliability
The combination of prolonged delivery times and higher costs erode supply chain reliability, to the extent that the intended transport planning and timelines are no longer feasible. Regular deviations in delivery times, from initial estimates can render supply chain planning sub-optimal.
4. Longer cash conversion cycle
If goods are delayed, they reach the markets late, resulting in delayed sales, and lengthening the cash conversion cycle. This, in turn, reduces the inventory and asset turnover ratio.
5. Higher inventory requirements
Due to the lack of reliability of supply chains, businesses are forced to maintain higher levels of inventory, which results in higher storage costs and risks to cargo.
6. Cash tied up in inventory and storage
Higher inventory levels mean that valuable working capital is tied up in inventory, impairing cash flows and liquidity.
7. Lost sales and missed revenue
If goods do not reach their final markets on time, the importer will have to contend with lost sales opportunities and revenue and decreased customer satisfaction. If the shortages are ongoing, consumers will start using competitors’ products, giving rise to the danger of a long-term shift in favor of competition.
Implementing a Smart Document Management System
Document management systems (DMS) are essential for businesses to manage their documents and automate workflows. A DMS captures, manages, retrieves, and stores documents in electronic format, enabling organizations to achieve new levels of speed, accuracy, and transparency.
Today, the advent of AI in documentation management has introduced intelligent document processing (IDP), which enables shippers and customs brokers to collect information from unstructured data sources with ease. KlearNow leverages IDP to read, collate, and streamline the document management process. KlearNow’s ability to decipher unstructured data, pre-populate documents, and automate custom filing preperation, makes documentation management faster and more accurate for businesses.
KlearNow’s diverse product line of KlearCustoms and KlearEngine helps customs brokers and importers process data more efficiently by digitizing documents and automating information flows. This enables shippers to focus on their core value-adding business activities while being assured of being customs-compliant.
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