Top Reasons Why Ex Works Might Not Probably Be the Best Choice for Your Business

Tazapay
Aug 3, 2021
3 minutes of read

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The EX Work Incoterm is commonly known as EXW Incoterm, often heard during the trade sector, especially for importing and exporting goods. When you opt for an EXW incoterm, the seller is only responsible for delivering goods to the designated location. Everything after that, including the shipping cost, is covered by the buyer. Therefore, this arrangement is more suitable for sellers as it has limited obligations for them.

Under this incoterm, once the merchandise is packed, the full responsibility falls on the importer. The responsibility involves the entire export process and communication with the seller country’s authorities. However, EX Works could become cumbersome for the importer if they are not well-versed with the country-of-origin’s regulations and policies. In this case, it may require the freight forwarder or seller to step in.

Most of the exporters prefer selling under EXW incoterms, meaning it appears as if the seller has limited responsibility with no hassles on its end. However, both the importer and exporter need to exercise caution while using this mode of shipping. Apart from EX Works, there are ten other incoterms. Businesses are encouraged to understand the meanings of these incoterms before choosing an option.

https://image.slidesharecdn.com/blandinco-150704055557-lva1-app6892/95/bill-of-lading-and-inco-terms-13-638.jpg?cb=1435989377
https://image.slidesharecdn.com/blandinco-150704055557-lva1-app6892/95/bill-of-lading-and-inco-terms-13-638.jpg?cb=1435989377

The top reasons why Ex Works may not be the best choice for a business are because of the following pitfalls:

Goods Damaged while Loading

In most of the incoterms, the responsibility of loading goods onto the ship lies with the seller. However, EX works assign this responsibility to the buyer, therefore palming off the buyer's risk of loss and damage. The EXW incoterm, on the face of it, appears to be beneficial for the seller. However, if you look closely, this leaves the relationship between the two parties very vulnerable. The association between the importer and exporter could be threatened by this mishap leading to discontinuity of further business between the two.

Discrepancies in Payment

No matter the form of payment chosen, be it a time draft, LoC - letter of credit, or a bank guarantee, the seller needs to exhibit control over the international bill of lading to get remunerated by the bank.

Regrettably, when Ex Works is selected, the exporter plays no role in the document's preparation. If there is an error in the bill of lading, the exporter is left with no recourse to correct it. It is because the importer appoints the forwarder to prepare this document. Since the forwarder represents the buyer, they are not obligated to course-correct on behalf of the seller. Suppose an incorrect bill of lading is presented to the bank. In that case, the seller is being levied discrepancy fees. Under the worst-case scenario, the seller may not be paid in its entirety.

Control over the Export

Under Ex Works, the importer is fully responsible for the export formalities and arranging clearance. If one hears this, it may appear to favour the seller as these clearances could appear like a hassle. However, this arrangement could lead to multiple compliance issues that crop up.

The most blatant issue arises when the buyer is abroad. The buyer could lack familiarity with the country-of-origin regulations. Hence, it becomes difficult for the buyer to comprehend how to comply with the seller country's export laws and regulations. As a result, the chances of incorrect or incomplete export filing could go up. It can take its toll on the importer and the exporter. But regardless of the export formalities as per the original arrangement, the exporter is responsible for shipment compliance. Suppose the buyer is unable to obtain the right export license. In that case, the seller could be charged high penalties or lose out on export privileges.

Choose an Escrow provider such as Tazapay

It is important to make sure your incoterm is aligned with your payment handler. A reliable Escrow provider such as Tazapay will protect the rights of both the parties involved as well as keep you abreast of the potential pitfalls associated with the incoterms.

Tazapay ensures buyer protection by keeping the payment secure until the contractual obligations are fulfilled and completed shipment. It factors in all possible scenarios such as damaged goods, delayed shipments, etc., in accordance with the contract. Furthermore, seller protection comes because the payment is secured by the escrow provider and dispatched once the buyer completes their obligations. It ensures the seller that payments can not be denied or withheld if the seller fulfils their responsibilities.

Ideally, businesses need to understand the incoterms meaning fully - on the face of it, something may appear lucrative, but the actual execution could impact you differently. Escrow providers such as Tazapay are experts in handling cross-border trade finance. They can answer all your import and export-related queries related to pricing structure, incoterms meaning, cross-border rules and regulations, etc. When you get this kind of professional backing, you can bring down potential risks associated with cross-border trade and do stress-free business.

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Customs & Incoterms

Top Reasons Why Ex Works Might Not Probably Be the Best Choice for Your Business

Aug 3, 2021
3 min of read

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