Ron Jacobsen on drawback: Does it make sense for my company?

Northstar LogoWhat do you do when the subject of drawback comes up in a meeting or by the coffee machine? What would you say when the Senior Manager comes to your cubicle and informs you that you have been chosen to spearhead the new Drawback program. Lucky you, didn’t you just get assigned that cost analysis project also?Dollar Sign

You may know the term, may even understand the essential concepts, but what are the first steps that need to be taken? You Google drawback and you find a confusing array of folks trying to tell you to call them for help. You know you need help of course, but now what?

The answer nearly always involves networking. Your Customs Broker will either have the experience needed to assist, especially if your program is shallow in depth, but more importantly (s)he will be able to quickly determine if your program is over their heads, too complex, or too massive in scope. When that happens, most Brokers have networked with specialists to provide this service for their clients.

It’s a rare week this doesn’t happen in our shop. Sometimes we are given a number/name to call, sometimes we are told to expect a call, or sometimes we get a cold call from an exporter who’s Broker told them to call. Either way, it’s usually a little frantic due to the great “unknown”. Putting in a half hour of Google time has done nothing but to make matters worse and the issue more confusing.

That’s where the specialist comes in. A calm approach is often best, but with a focus on two primary issues simultaneously. After the pleasantries and small talk of identifying ourselves and a little about our respective firms and what we both do, I steer the conversation directly to the single most important issue. Money. I don’t like to beat around the bush and waste a lot of anyone’s time when the drawback yield potential doesn’t make sense. Please pardon us drawback specialists when it seems like we can’t get the money thing out of our head. That is because it is the most important thing to be able to account for. Simply stated, how much money will your drawback program yield?

The answer is easier than you might think and it’s almost universal. Figure out how much duty your company paid in Customs duty (CBP 7501 box 37) last year. If you don’t know that, ask your import Broker. Once you have that figure, go to the sales department and figure out the percent of product you exported in that same timeframe, whether you manufacture or not. Most of the clients we have worked with over the years tell me a range from about 10% to 20%. Now you have all you need to answer the money question. Solve for “X” is easy. Real Money

The next subject is how long has this hemorrhage been going on? We have the potential of recovering 3 years of past exports, so if that $150,000.00 has remained static for that period, you now are talking $450,000.00. But, if your annual recovery is under $25,000.00, it probably isn’t going to be as “worth it” as you might think, so getting this answer, you see…is pivotal.

The second issue we try to get through in an initial call concerns vetting a viable program. It then becomes a matter of answering a myriad of questions I will pose to a company to see what type(s) of drawback they are eligible for, where the data will come from, who has records and in what condition and so forth. Most specialist have been through this so many times, we use checklists and tools to understand in as short a time as possible from a Drawback perspective, if a program is viable and can be adequately supported. If the records or systems required don’t exist, the money doesn’t matter.

In the next installment, we will cover what those documents and systems are and who must be the “Project Manager” for the program. Often times this is a person in accounting but that may not always be the best choice. We will also cover the effect NAFTA and other FTA have on drawback as well as making applications to CBP. Despite what you might feel about it, CBP considers Drawback a privilege, not a right and treats is very much that way.

If you have any questions about drawback, contact Camelot and we will happily talk through the process and potential recoveries with you.

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