Given the sheer quantity and diversity of information flows in international trade, the data that importers and customs brokers need to process, prepare, and share can often be of overwhelming magnitude. This humongous volume of data handled is matched by its complexity, which generally has its source in bureaucratic customs regulations, like tariffs, duties and taxes. Effective documentation management is essential to streamline these processes, ensuring accuracy, compliance, and efficiency in handling trade paperwork and regulatory requirements.
In recent years, new trends in procurement driven by geopolitical and macroeconomic factors have led to the emergence of alternate sourcing locations, giving rise to new trade relationships and altering trade flows. We can see this today with the announcement of several increased and new tariffs by the incoming administration in the United States.
This has led to an increase in the evaluation and actual number of trading partners that importers and exporters work with, each with its own regulations and nuances.
Additionally, to ensure sanctions, quotas, and covenants of bilateral agreements are not violated, customs departments have correspondingly increased their documentation requirements to effectively regulate imports and international trade.
While these documentary processes that importers and customs brokers are legally obligated to comply with might seem cumbersome, they are necessary to ensure the seamless clearance of imported and exported merchandise.
Importance of Documentation Management
The greater number of trade documents and the underlying complexity have rendered the role of documentation management even more critical.
Whilst historically, documentation management has been handled manually, the evolving trade landscape now warrants a more structured and data-driven approach. To optimize documentation management, it is crucial to identify essential workflows within digital document management systems, particularly in key business areas such as finance and HR.
Documentation management comprises not just digitizing, preparing, sharing, and storing documents and information, but also automating and pre-populating documents, ensuring data security and ease of retrieval.
With stringent fines and penalties being prescribed for transgressions of customs laws, the onus is on customs brokers and importers to optimize documentation management and ensure complete compliance with relevant customs rules and procedures.
Types of Documents Involved in International Trade
International trade involves a wide range of documents that are essential for the smooth execution of transactions. These documents can be broadly categorized into several types:
- Commercial Documents: These include invoices, packing lists, and certificates of origin, which provide details about the goods being traded. Accurate commercial documents are crucial for ensuring that all parties have a clear understanding of the transaction details.
- Customs Documents: These include customs declarations, commercial invoices, and bills of lading, which are required for customs clearance. Properly prepared customs documents help facilitate the efficient movement of goods across borders and ensure compliance with customs regulations.
- Shipping Documents: These include bills for lading, airway bills, and freight forwarders’ receipts, which provide details about the transportation of goods. Shipping documents are vital for tracking shipments and verifying the receipt of goods.
- Financial Documents: These include letters of credit, bank guarantees, and payment receipts, which facilitate payment and financing for international trade. Financial documents ensure that the financial aspects of the transaction are secure and transparent.
- Regulatory Documents: These include permits, licenses, and certificates of compliance, which are required to ensure that goods meet regulatory requirements. Regulatory documents help businesses comply with various international trade laws, local trade laws like tariffs and quotas, as well as, other governmental standards.
Effective document management is critical for international trade, as it helps to ensure that all necessary documents are accurate, complete, and readily available. By organizing documents efficiently, businesses can streamline their trade processes and avoid potential delays and penalties.
Challenges in Documentation Management
The current manual process of documentation management is fraught with challenges, which are explained below:
1. Multiple jurisdictions and unique requirements in each country
The interconnected nature of global supply chains means that trade in goods generally involves more than two countries and a multitude of stakeholders. Besides, the contents and formats of documents in each country will invariably differ, necessitating that the same information be presented in different forms.
This implies that the parties to the transaction have to deal with multiple jurisdictions and comply with each other’s requirements, besides having to obtain information from several entities, amplifying the challenges of documentation management. In other cases, data from previous years may not be available or may not meet the criteria for inclusion, further complicating the documentation process.
2. Range of commodities and specific requirements in each country
Information requirements vary depending on the commodity, the nature of the commodity (such as perishable items or hazardous cargo), and compliance with country-specific laws regarding restrictions on other countries/ preferential access to certain countries/ environmental laws.
Since the range of commodities traded internationally is vast, the documentation process becomes more complicated.
There is also a further complication when you consider that raw materials and parts of finished commodities can originate from multiple countries, making the research and presentation of such documentation even more complicated and cumbersome. For instance, in the US, there is a continued focus on General Identification, and having visibility into all the suppliers throughout the value chain.
3. Information available in different modes and formats
Information is made available to the importer or customs broker in diverse modes, including Excel spreadsheets, Word documents, PDF files, emails, and paper. The format in which information is shared is also generally different, depending on the entity that compiles the information and country-specific mandates.
This makes it difficult to consolidate information and compile it in a standardized format.
4. Unstructured information
Most data shared in international trade is unstructured, making it difficult to interpret. These difficulties can arise from factors such as the document being illegible, missing some information, or being in a different language.
5. Manual process, making it cumbersome and expensive
The manual method of documentation management relies primarily on human efforts, making it an onerous task that involves painstaking efforts and is also expensive, given the manpower required.
6. Greater probability of errors in customs documentation preparation and submission
A combination of manual processes and unstructured data increases the probability of human errors, in interpreting data and preparing documents. While some errors are relatively minor and can be rectified, errors such as misclassification of the commodity or incorrect application of duty thereupon can have far more severe consequences.
7. Greater probability of missing deadlines or not sharing information
The reliance on human effort also increases the probability of missing deadlines or not sharing information as mandated, resulting in non-compliance.
8. Exposure to risk of penalties and fines
These challenges expose the importer to the risk of monetary fines and penalties, besides the commercial impact of delayed customs clearance and localized supply chain disruptions, resulting in reputational loss and missed sales opportunities.
Best Practices for Document Management
Effective document management requires several best practices to ensure efficiency, accuracy, and compliance:
- Centralized Document Storage: All documents should be stored in a centralized location, such as a document management system, to ensure easy access and retrieval. Centralized storage helps organize documents systematically and reduces the risk of misplacement.
- Standardized Document Templates: Document templates should be standardized to ensure consistency and accuracy. Standardized templates streamline the document creation process and ensure that all necessary information is included.
- Automated Document Workflows: Document workflows should be automated to reduce manual errors and improve efficiency. Automation helps in routing documents to the right personnel for review and approval, speeding up the process.
- Regular Document Backups: Documents should be regularly backed up to ensure that they are not lost or corrupted. Regular backups protect against data loss due to system failures or cyber-attacks.
- Access Controls: Access to documents should be controlled to ensure that only authorized personnel can view, edit, or delete documents. Implementing access controls helps maintain data security and integrity.
- Detailed Data Capture: Capturing information down to a SKU-Level or a Part-Level is critically important when considering value chains or tariff changes. Understanding how much a change in a tariff will impact your business is extremely difficult if you don’t have the combination of HYTS level information plus transactional volumes to estimate accurate potential impacts.
By following these best practices, businesses can ensure that their document management processes are efficient, effective, and have the flexibility to be compliant with regulatory requirements and changes. Proper document management enhances operational efficiency and reduces the risk of errors and non-compliance.
Leverage KlearNow to Overcome These Challenges
Leveraging technology is the most sustainable way to optimize documentation management and overcome these challenges. Document management software plays a critical role in enhancing business processes, efficiency, and compliance.
The deployment of AI-powered logtech solutions like intelligent document processing (IDP) can help redesign existing documentation management practices, making it easier for importers and customs brokers. Parts database management is possible only when you capture all the data from your documents, standardize and validate the information, and then combine it with transactional shipment volume to get a full picture of the impact of your compliance on your business.
KlearNow, with its repertoire of sophisticated products, aimed at simplifying documentation management and customs compliance, is the ideal choice for importers and customs brokers evaluating technological solutions to streamline their operations.
Products such as KlearCustoms and KlearEngine are all designed to enable the digital transformation of customs clearance and documentation.
Click here for a free demo to see how you can benefit from technology for your customs clearance processes.
