Importing goods for resale can be a lucrative venture, but it’s also a highly competitive arena. Your company undoubtedly has several rivals, and you’re all vying for customer business. To offer buyers the best prices while maximizing profitability, you must save money wherever possible. Fortunately, a financial tool is made especially for businesses importing goods into the US — duty drawback claims.
Essentially a refund of some duties, taxes, and fees paid on imported merchandise, duty drawback can help your company reduce its overall import expenses. This allows you to pass the savings on to end customers and gain a competitive advantage in the marketplace. However, the rules of duty drawbacks can be complex. You can only make duty drawback claims in specific scenarios, and it’s not always obvious how to maximize the benefits.
In fact, to maximize duty drawbacks, you need a well-planned strategy. Here are some tips to help your business get started.
Understanding Duty Drawback
So, what is duty drawback, exactly? According to the US Customs and Border Protection (CBP), the definition of drawback is “the refund of certain duties, internal revenue taxes and certain fees collected upon the importation of goods and refunded when the merchandise is exported or destroyed.”
However, that’s just a high-level overview. The rules of duty drawback claims are much more elaborate.
For instance, duty drawback allows your business to reclaim a portion, or all of, the duties and fees paid if imported goods are subsequently exported — either in their original form or after being used as components in manufacturing processes that result in exported products. With this provision, CBP hopes to encourage exports by making them more cost-competitive in the global marketplace.
This is generally known as a manufacturing drawback. Another common type is the unused merchandise drawback, which applies to imported goods that are exported without being used or altered. Substitution drawbacks allow your business to swap domestically produced goods for imported ones of the same type and quality.
There are also drawback programs for rejected merchandise. You might qualify for one of these programs if your business imports goods that don’t meet specifications. Finally, there are specialized drawback programs for specific industries.
You follow a multi-step process to take advantage of any of these duty drawback programs. First, you must identify eligible imported merchandise. Then, you determine the applicable drawback rates based on the US International Trade Commission’s Harmonized Tariff Schedule (HTS).
To qualify for duty drawbacks, you must also provide accurate and detailed documentation of import and export transactions. This includes critical records such as commercial invoices, bills of lading, entry summaries, and other transactional documents.
You then file claims with CBP authorities, who review your documentation and verify drawback eligibility. The CBP may request additional documentation or require your business to answer any questions that arise during the process. Once approved, your company will receive the duty drawback refund.
Benefits of Maximizing Duty Drawback Claims
Regardless of the duty drawback program you participate in, the most immediate benefit to your business is the refund of import duties, taxes, and fees.
Receiving money back directly reduces your overall costs, increasing profitability directly or indirectly by allowing you to lower customer costs. Passing on the cost savings to customers attracts more business, positioning your company’s products as more affordable. Your business also enjoys better cash flow thanks to duty drawbacks. This recovered money can be invested in your company’s growth, allowing you to expand faster.
A side effect of participating in duty drawback programs is confidence in your record-keeping. Since each program requires accurate records, it’s easier to demonstrate your compliance with complex and multi-layered customs regulations. This increases stakeholder confidence, helps build trust with regulatory authorities, and minimizes the risk of penalties or failed audits.
Key Strategies to Maximize Duty Drawback Claims
Here are four strategies to help your company maximize duty drawback claims:
Conduct a thorough analysis of import/export transactions
Before making duty drawback claims, you must identify all eligible products. Study and understand the HTS classifications and the associated drawback rates. Next, review your past and current import and export records to find potential claims. Businesses often overlook drawback opportunities simply because they’re unaware of eligible transactions.
Utilize the right documentation and record-keeping
Accurate and detailed documentation is critical for any successful duty drawback claim. Implement record-keeping practices that help you maintain a clear audit trail for every transaction. Having these records available to answer any questions from the CBP can make the difference between a successful claim and missing out on a refund.
Find the optimal time for duty drawback claims
Making a successful duty drawback claim often comes down to a matter of timing. First and foremost, be aware of the time limits for filing claims. For manufacturing drawback claims, you typically have three years from the date of export to submit a claim. That’s a generous amount of time, but missing deadlines will result in forfeited refunds.
Once you get the hang of the claim process, try to align submissions with your company’s financial cycles. Filing claims at these times can enhance cash flow and boost the bottom line on balance sheets, profit-and-loss statements, and other key reports.
Leverage technology and automation
The duty drawback claim process isn’t easy, but technology can help. Duty drawback software and cloud platforms can automate calculations, find drawback programs you might be eligible for, and reduce the chance of errors. More advanced apps can even automate much of the claim process, freeing up your staff for other essential tasks. Look for platforms that integrate with your ERP systems and other critical business apps to automate the process further.
Working with a Professional Duty Drawback Service Provider
The best way to ensure your business files claims on the most eligible products and receives the largest refunds is to outsource the process. Partnering with an experienced duty drawback service provider ensures you receive all the benefits of drawback programs, as claims professionals put their in-depth knowledge of regulations to work for you.
J.M. Rodgers Co., Inc. (JMR) is the recognized leader in the duty drawback industry. Since 1952, our expert staff has filed drawback claims for every type of drawback in every industry. Today, JMR is the largest filer of drawback by volume in the US, with a perfect track record with the CBP. To get started with duty drawback services and save your company money, contact JMR today.
Photo Credit: Scott Graham | Unsplash
