Digital commerce has created a truly global marketplace, transforming shopping from a local or even regional activity into a process that happens from any location around the world. For years, more consumers have started turning to e-commerce to browse for and purchase all types of products and services. Since the onset of the COVID-19 pandemic, it appears that more consumers are turning to online shopping than ever before as stay-at-home orders and concerns about exposure reduce the amount of time and money being spent in traditional retail settings.
As retailers prepare for a holiday season in the age of COVID-19, not only will they need to ensure that their online storefronts are ready for domestic shoppers, but also the potential for international customers. With 57 percent of online shoppers worldwide already making cross-border purchases, retailers should prepare now for a global holiday shopping season — or risk missing out on reaching new customers. However, selling cross-border isn’t as simple as turning on your global e-commerce site and begin making sales. There are a range of cross-border nuances that e-commerce sellers must take into consideration as they prepare their sites for the upcoming holiday shopping season.
The Complexity of Cross-Border Selling
While e-commerce has increased options and access to products for consumers, global commerce has also generated new layers of complexity for retailers, from currency conversion to accurate tax and customs calculations based on HS classification, region, and beyond. Whenever goods leave one country and enter another, there's a maze of requirements from both the ship-from and ship-to government agencies, which each have their own rules. Beyond complying with government regulations, retailers must also factor in the customer and how compliance can directly impact their experience. Some of the key cross-border complexities retailers should be aware of include:
1. Taxes, Customs Duties, and Tariffs
Unlike selling domestically, cross-border transactions require retailers to comply with country-specific tax systems and types, including duties, Excise tax, Value Added Tax, Goods and Services Tax, and more. When it comes to assigning the right taxes, duties and tariffs, retailers must understand how product attributes impact tax and tariff costs. Retailers must also be able to keep up with the changing nature of duty and tax rates on a global scale. Manually determining the right amount of tax, duty and tariff to charge at the time of an online purchase is unattainable for even the largest retailer. For cross-border e-commerce transactions, retailers must be able to accurately calculate the correct costs of compliance at the time of transaction to ensure a smooth customer experience and maintain compliance from start to finish.
2. HS Codes and Item Classification
Every country assigns unique tariff codes to products for customs regulations purposes. Typically referred to as Harmonized System (HS) codes, these codes are a standardized numerical method for classifying traded products. For retailers selling cross-border, researching country-specific codes for all products across all countries can be time consuming, especially since countries assign different codes for products.
Getting the correct HS codes is critical to the entire cross-border transaction life cycle. If a code is assigned incorrectly, the retailer risks having products being held in customs and, in some cases, face heavy fines. Accurately assigning HS codes also has a direct impact on the customer experience by allowing retailers to calculate and collect the customs duty and import taxes upfront and avoid delays and surprise charges for the customer.
Many countries also control what goods can be imported and/or exported. Additionally, parcel carriers may restrict what types of goods they will ship. Understanding cross-border restrictions and preventing your customers from trying to purchase goods that they can’t legally receive is another important aspect of a good cross-border buying experience. And since these restrictions are often linked to the HS code, having accurate codes is even more important.
4. Landed Cost and Customer Experience
Given the added costs associated with cross-border transactions, it’s critical that retailers ensure that customers understand the full landed cost associated with getting a product delivered internationally. There are many factors that impact the landed cost, including shipping costs and delivery agreements. For many retailers, delivered duty paid (DDP) is a delivery agreement where the seller assumes the risk and costs associated with transporting foods until the buyer receives it, which eliminates surprise costs being passed along to the end customer. Delivery delays due to holdups in customs and inflated prices due to inaccurate compliance and shipping cost calculations also have a direct impact on the customer experience.
Ultimately, retailers thinking globally as they prepare their e-commerce channels for the holiday season will need to pay extra attention to the impact compliance has on the entire cross-border transaction life cycle. Accurately calculating duties and import taxes hinges on a retailer’s ability to correctly assign product codes and map them to the rates and rules in each country they're doing business in. If done incorrectly, retailers not only put themselves at risk of steep compliance-related fees, but they also risk jeopardizing the customer experience with delayed shipments and added costs.
Fortunately, there are automated solutions available that integrate with a retailer’s existing e-commerce platform or other selling channels that enable cross-border selling. Automated solutions can handle every aspect of the cross-border compliance process, from HS code assignments to real-time tax calculation. These solutions provide retailers with greater visibility and control over product delivery costs to increase confidence in the amounts being charged. They can also improve the returns process by having a strong grip on compliance, which makes it easier to accept and process returns.
In order to serve an international audience of customers, inspire confidence, and ensure there are no hidden costs as a purchase crosses borders to get to customers’ front doors, retailers need to have an intelligent suite of transaction solutions in place to enable consistent rates in addition to accuracy, transparency and security. From browsing to checkout to delivery, automation and modular solutions will be necessary to ensure that the end-to-end cross-border customer experience meets expectations and gets packages to their destinations in time this holiday season.
Craig Reed is senior vice president of global trade at Avalara, an automated tax compliance software provider.
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