How do YOU find the right suppliers and what does FOB, CIF, C&F mean – ahhhhhh?
Right – the shed is empty. There’s no more stock to sell, but you’ve got the BUG. Fantastic!!!
You have also learnt a few ways to navigate around eBay and some other sites too. This is all great stuff.
Next stage is easy, simply go to Google and search for suppliers selling the same old stuff that was in the shed – right?
My experience tells me: ALARM BELLS – tread slowly and carefully here.
I learnt the hard way and lost CASH in the process. If your old stuff is sourced from overseas, ‘buying’ can be tricky.
The formula T = C *I * 1/r applies very much here. TRUST is critical – between supplier and seller.
How are you going to have enough TRUST with suppliers you don’t know with your hard earned cash?…. and what do all these unfamiliar terms mean (FOB, CIF, C&F, MOQ)?
On your first approach, you may be presented with a host of unfamiliar terms from the potential supplier. Not only do you have to check out the prices and quality, you need to understand the supplier’s terms of engagement. There are no set rules when dealing overseas. It can be daunting.
Ok- let’s tackle some of these terms:
1) FOB : Some refer to it a s “Freight on Board”, but more correctly it should be termed “Free on Board“. The supplier/manufacturuer uses this term to indicate that the buyer (that’s YOU) assumes all responsibility for all the costs, risk of loss, or even damage to the goods – from the time it reaches the means of transportation. FOB is mainly used for shipping goods via sea or possibly inland waterway. The seller also clears the shipment of goods for export.
Remember, when the goods are onboard, you take ownership of responsibility; this means cost of shipping, potential damages, loss, theft and any possibilities.
However, some advice here is to ensure that the FOB price includes: the actual cost of the goods, transportation costs, insurance costs and the cost of loading the goods onto the vessel…… and… see if you can arrange to have the costs delivered through customs to arrive at your door (probably additional cost will come through – (i.e. Customs won’t release the goods until you’ve paid the appropriate importation)).
Generally FOB does not include shipping freight or insurance. Confusing?
So, before you agree and part with your hard-earned cash, confirm your agreed terms through a PERFORMA INVOICE – can explain this later.
Also if you want to know ways in how to verify the integrity of your suppliers, contact me (I will be writing about this later, but it does require a separate article).
2) CIF: Stands for “COST, INSURANCE and FREIGHT” - arranged by the supplier and, Yes, it is generally more expensive than FOB. In this case the seller is responsible for the goods once they are onboard the ship. The seller pays cost and freight to transport the goods to the destination port (as opposed to FOB where their responsibility is to bring it to the departure port).
Note: the buyer is still responsible for risk of loss, damage and any other horrible surprises that materialise after departure. CIF transfers these responsibilities after departure. The seller, however does invest in insurance for loss and damage during shipping, but may be unclear to you what the lines of demarcation are. Again, this can be confusing!!!
Golden rule: Know what questions to ask at the outset and seek written confirmation of what the terms are, especially around responsibility and insurance. Research and planning are key.
The cost breaks down looks like this: cost of goods + shipping freight + insurance. Get this clearly written on to the proforma invoice.
3) C&F: Stands for “Cost and Freight.” It is determined by adding the value of the goods with the costs and freight for shipping to reach the final destination.
The price breakdown looks like this: cost of goods + shipping freight.
Again, follow the advice mentioned in items 1) and 2)… This will save you heartache and possible loss of money.
4) MOQ: Minimum Order Quantity. Most suppliers will want you to commit to a minimum number to buy. This can be difficult especially at the beginning because you are unfamiliar with the supplier’s quality, efficiency and understanding of what you are looking for. The TRUST formula applies again. SO, in order to build the trust, request for a sample of goods. Some suppliers may even provide free samples, but more often the case they will charge a premium to an unknown buyer. This is OK to pay the premium price for small quantities, but ensure you have the MOQ prices agreed upfront. You can always negotiate the MOQ figure too, despite what they supplier may say on their web-site.
I hope all this makes sense. It can be a mine-field, but once you have found reliable ‘suppliers’ hold on to them. They can be worth their weight in gold. Build up strong relationships with them. If possible, visit them, even if they are in China or Pakistan. If this is not possible link up with them through the Web and keep in touch.
Now if this article raises more questions, feel free to contact me. I’m happy to share my experiences and let you know what areas to avoid so you have less risk when making those payments. There’s another mine-field (payment terms!!!).
5) PAYMENT TERMS: How do you know what percentage to pay when making an order? You wish to hang onto to your money as long as possible, surely. However, the supplier wants his/her money too, before they start working on your products? Is this a catch ’22’?
Feel free to contact me. I deal with suppliers almost every day and can help you protect your money as well as reassuring the suppliers that they will get paid. It can be a balancing act. Respecting between both parties is important here.
One more small nugget to chew on:
Before you reach out to your targeted suppliers you may want to consider having a web-site or at least an eBay shop as a point of reference, so your potential suppliers can verify your integrity as much as you wish to check theirs.
I presented both my online shop and eBay site. At the time of course I was not a POWER SELLER, but nevertheless it helped with negotiations, especially around price and MOQ. I wanted to come across as a ‘Credible‘ buyer. It’s one of the variables to the ‘Trust’ formula, of course.
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