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How Can An AEO Certificate Improve Your Cash Flow?

Updated: Jul 25, 2023


If you are an exporter or importer in India, you might have heard of the Authorized Economic Operator (AEO) Program. This is a voluntary program that aims to enhance the security and facilitation of international trade by certifying compliant exporters/importers as AEOs. AEOs enjoy various benefits such as faster customs clearance, deferred duty payments, reduced inspections, priority treatment, and mutual recognition with other countries.


But what does it take to become an AEO in India? And what are the advantages of being one? In this article, I shall answer these questions and more.




What is AEO?


AEO stands for Authorized Economic Operator, a certification program that aims to enhance the security and efficiency of international trade. AEOs are businesses that comply with certain standards and criteria related to customs compliance, record keeping, financial solvency, and security management. By becoming an AEO, a business can enjoy various benefits such as simplified customs procedures, reduced inspection rates, priority treatment, mutual recognition agreements, and improved reputation.



What are the benefits of being an AEO

The AEO status confers various benefits to the certified entities, such as:


1) Faster customs clearance: AEOs are given priority in customs clearance and are subject to reduced examination and documentation requirements. They can also use self-assessment and self-certification methods for declaring their goods. This benefit is available for T1, T2 and T3.


2) Reduced inspections: AEOs are subject to lower levels of physical and documentary inspections by customs authorities. They can also benefit from simplified procedures for post-clearance audits and verifications. This benefit is available for T1, T2 and T3.


3) Priority treatment: AEOs are given preference in resolving disputes and queries with customs authorities. They can also avail of dedicated customer service and grievance redressal mechanisms. This benefit is available for T1, T2 and T3.


4) Deferred payment of duty: AEO certified entities are eligible to defer payment of duty on their imported goods. This can save them a significant amount of money in interest payments. This benefit is available for T2 and T3 only.


5) Direct port delivery/entry: AEO certified entities are allowed to take their imported goods delivery directly at port terminal without being sent to a container freight station (CFS) or an inland container depot (ICD) for examination and assessment. This can save them time and money. This benefit is available for T1, T2 and T3.


6) Reduction in BG amount: AEO-certified entities are granted certain privileges by customs authorities, including reduced BG (Bank Guarantee) amounts. For example, AEO T1-certified entities are typically granted a 50% reduction in BG, while AEO T2-certified entities are typically granted a 75% reduction in BG and there is 'No BG' is required for AEO T3-certified entities.


7) Faster refund & rebate: AEO-certified entities are given priority in the processing of refund and rebate claims. This means that their claims are likely to be processed more quickly and efficiently. For example, AEO T1-certified entities refund and rebate claims are processed with regular pace, while AEO T2 & T3-certified entities claims are processed in 45 days and 30 days respectively.


8) On request 24 x 7 customs clearance facilities at all sea-Ports and airports: AEO-certified entities are eligible for 24x7 customs clearance in India. This means that their shipments can be cleared through customs at any time of day or night. This can be a major benefit for businesses that operate around the clock or that need to clear shipments quickly. This benefit is available for T1, T2 and T3.


9) Mutual recognition: AEOs can enjoy reciprocal benefits in other countries that have signed mutual recognition agreements (MRAs) with India. These include countries such as Japan, South Korea, China, Singapore, Hong Kong, Taiwan, etc. Under MRAs, AEOs are recognised as low-risk traders by the partner countries and are granted similar benefits as their own AEOs. This benefit is available only to AEO-T2 and T3 certified entities.






How to become an AEO in India?


AEO is a facilitation scheme that grants certain privileges, benefits and exemptions to the holders of this certificate on account of import and export. The AEO Programme was developed by the World Customs Organisation (WCO) and introduced in India by the Central Board of Indirect Taxes & Customs (CBIC) in 2011. The Indian AEO Programme is implemented vide CBIC Circular 33/2016 – Customs dated 22.07.2016, as amended & Circular 26/2018- Cus dated 10.08.2018, which provides the statutory framework for the AEO programme. The circular is in line with the WCO’s SAFE Framework. The AEO Programme aims to set standards to secure and facilitate the ever-growing flow of goods in international trade.


If you are a business entity in India that is involved in the global supply chain, you might be interested in becoming an Authorised Economic Operator (AEO).


The AEO Programme is a voluntary programme that is open to all business entities that meet the eligibility criteria and compliance standards set by the CBIC. The AEO Programme has three tiers of certification: AEO-T1, AEO-T2 and AEO-T3. Each tier has different requirements and benefits, depending on the level of compliance and security of the business entity. There is one more category of AEO- LO (Logistics Operator) that covers all other entities in the supply chain other than the importers and exporters.


Steps To Become an AEO

To become an AEO in India, you need to follow these five steps:


1. Check your eligibility: You need to be a legal entity registered in India and must have had business activity for three Financial Years (it can be waived in deserving cases). You must be involved in International Supply Chain as an Importer, Exporter, Custom Broker, Warehouse Operator, Transporter etc. and must have handled at least 25 export/import documents (shipping bills and/or bill of entries) in the previous financial year . You also need to have a valid Permanent Account Number (PAN) and a active Importer-Exporter Code (IEC).


2. Choose your tier: You need to decide which tier of certification suits your business needs and capabilities. If you want to improve your cash flow you must go for AEO-T2 & AEO-T3. Application for AEO-T3 can be made only if you are enjoying AEO-T2 status for at least two years prior to the date of application for grant of AEO-T3 status. You can refer to the CBIC website for the detailed criteria and benefits of each tier.


3. Apply online: You need to fill up an online application form on the Indian Customs website and upload the required documents such as financial statements, compliance records, security plans, etc. You need not to pay a fee for the application. It is advisable to take help of an AEO Expert before filing the application. Various sensitive compliance points, security related requirements and related documents are asked while filing the application. AEO experts have extensive knowledge of the AEO program and the requirements for certification. They can help you to understand the program and to ensure that your application is complete, trouble-free and accurate.


Availability of necessary documents/information in advance

The following documents/information should be available with you before filing the AEO application.


a) Legal compliances related information/documents.

b) Commercial and transport documents.

c) Safety & security arrangement including AEO level SOPs.

i) Procedural security

ii) Physical security

iii) Cargo security

iv) High security seal management

v) Conveyance Security

vi) Personnel Security

vii) Business Partner Security

viii) Security Training and Threat Awareness


4. Undergo verification: You need to undergo a verification process by the CBIC officials who will assess your compliance level and security measures. The verification process may involve site visits, interviews, audits, etc.


[It is highly recommended to conduct a pre-audit before applying for AEO]


5. Get certified: If you meet the criteria and standards of the CBIC, you will be granted an AEO certificate valid for three years (T1 & T2) and five years (T3 & LO). You will also receive an AEO logo that you can use on your documents and website.



Obtaining an AEO certification is not an easy task. It requires a thorough assessment of the trader's processes, systems, records, and documentation by the customs authorities. This is where an AEO Expert can help.




How to leverage the AEO status for your business?


The AEO status can help you improve your competitiveness and efficiency in the global market. Here are some ways you can leverage the AEO status for your business:


1) Reduce your costs: By saving time and resources in customs clearance and inspections, you can reduce your operational costs and improve your cash flow. You can also avoid penalties and fines for non-compliance or errors in declarations. AEO-certified entities may be able to negotiate better rates with their suppliers and carriers.


For example, if you are a non-AEO certified entity and your import consignment is stuck in port clearance due to unavoidable circumstances like natural calamity or pandemic lockdown. And while operations at the port are restored, the port refuses priority clearance of your shipment but not to an AEO-certified unit.


At the same time your French customer needs an urgent paid air shipment or else his production line may be shut down soon. You do not have the parts to build this order, but it is stuck in a container and you are not in a position to receive it. You are now forced to obtain air shipment from your German supplier at your own cost. It will cost you 2 to 3 times more than to obtain a full container load by sea mode.


If you were an AEO-certified entity, Customs takes care of you first and you enjoy the immediate delivery of your customer's orders without incurring additional costs. So being an AEO-certified organization is a worthwhile decision.


2) Improve cash flow: AEO-certified entities are granted certain privileges by customs authorities, including deferred payment of duty and reduction in BG amount.


Deferred payment of duty is a mechanism that allows AEO-certified entities to defer the payment of customs duty with continuous import clearances. Such deferred duties (collectively) can be paid once. This can be a valuable benefit for businesses that need to import or export goods on a regular basis.


Deferred payment of duty can be a valuable benefit for AEO-certified entities. It can help businesses to save money on interest charges and to improve their cash flow.


Here are some of the benefits of deferred payment of duty for AEO-certified entities:

  • Save money on interest charges: Deferred payment of duty can save businesses money on interest charges. This is because businesses do not have to pay interest on the customs duty for many import consignments which were cleared without payment of duty. However, such interest free duties must be paid at once on a certain date.

  • Improve cash flow: Deferred payment of duty can help businesses to improve their cash flow. This is because businesses do not have to pay the customs duty upfront. This can give businesses more time to collect payments from their customers.

  • Increased flexibility: Deferred payment of duty can give businesses more flexibility. This is because businesses do not have to have the entire amount of customs duty in cash upfront.

In similar manner, BG is a type of guarantee that is required by customs authorities to ensure that imported goods will be released and duties paid. The amount of BG that is required is typically based on the value of the goods being imported. However, AEO-certified entities are typically granted a reduced BG amount, which can save them money.


There are a number of reasons why AEO-certified entities are granted a reduced BG amount. First, AEO-certified entities have a proven track record of compliance with customs regulations. This means that there is a lower risk that they will fail to pay duties or that they will attempt to smuggle goods. Second, AEO-certified entities have implemented security measures that help to protect against customs fraud. This helps to ensure that the goods that are being imported are legitimate.


As a result of these factors, customs authorities are more confident that AEO-certified entities will comply with regulations and that the goods that they are importing are legitimate. This is why they are granted a reduced BG amount.


The amount of BG that is reduced will vary depending on the AEO level that an entity has achieved. For example, AEO T1-certified entities are typically granted a 50% reduction in BG, while AEO T2-certified entities are typically granted a 75% reduction in BG and for AEO T3-certified entities no need to furnish a BG.


The reduction in BG can save businesses a significant amount of money. For example, if a business imports goods worth Rs. 1 million, and the BG amount is typically Rs. 200,000, then an AEO T2-certified entity would only be required to submit a BG of Rs. 50,000. This would save the business Rs.150,000.


The AEO Program is a valuable tool for businesses that import and export goods. By becoming AEO-certified, businesses can reduce their BG amounts, clear the goods for import with deferred duty payment without paying the interest on deferred duty amount, which can save them a significant amount of money.


3) Direct Port Delivery/Entry: The consignments are delivered directly to the importer or their authorized customs broker at the port terminal, without being sent to a container freight station (CFS) or an inland container depot (ICD) for examination and assessment. This reduces the dwell time and cost of importation, and improves the ease of doing business in India.


For example, when a consignment sends to a CFS, importer needs to incur additional logistics costs and CFS charges. AEO certified entity can save such costs by using DPD/DPE scheme.


4) Faster Refund/Rebate: The faster processing of refund and rebate claims can save businesses a significant amount of time and money. For example, if a business exports goods worth US$1 million, and the refund amount is typically US$180,000, then an AEO-certified entity could receive the refund in a matter of weeks, rather than months. You can imagine that if you had borrowed this money from the bank, then how much money you would have to pay as interest for delayed period. This would save the business time and money that they could use for other purposes.


4) Enhance your reputation: By demonstrating your compliance and security standards, you can enhance your reputation and credibility among your customers, suppliers, and regulators. They may also be able to attract new customers and partners who are looking for businesses that are committed to security and compliance. You can also use the AEO logo as a marketing tool to showcase your status.


5) Expand your opportunities: By accessing new markets and customers through MRAs, you can expand your opportunities and increase your sales. You can also benefit from preferential treatment in trade agreements and negotiations with other countries.



Why to take help of an AEO Expert before filing the AEO application?


Obtaining an AEO certification is not an easy task. It requires a thorough assessment of the trader's processes, systems, records, and documentation by the customs authorities. This is where an AEO Expert can help.


An AEO Expert is a professional who has extensive knowledge and experience in the field of customs and trade compliance. They can assist traders in preparing and filing their AEO application, as well as providing guidance and support throughout the process. An AEO Expert can help traders to:


  1. Identify and address any gaps or weaknesses in their current operations that may affect their eligibility for AEO certification.

  2. Develop and implement an action plan, SOPs and provide training to improve their security and efficiency standards and meet the AEO criteria.

  3. Prepare and submit a comprehensive and accurate AEO application that demonstrates their compliance with the AEO requirements.

  4. Communicate and coordinate with the customs authorities during the verification and validation stages of the AEO process.

  5. Maintain and update their AEO status and ensure continuous compliance with the AEO obligations.


By taking help of an AEO Expert before filing the AEO application, traders can save time, money, and resources, as well as increase their chances of obtaining an AEO certification successfully. An AEO Expert can also help traders to leverage the benefits of AEO certification, such as faster customs clearance, reduced inspections, lower duty rates, and preferential treatment in mutual recognition agreements with other countries.



EXIM Clinic specializes in the AEO and CTPAT programs. They deliver results without disrupting your regular business operations and also provide training to your staff to foster a security mindset and ensure compliance with post-AEO requirements.



Conclusion


The Indian AEO Program is a valuable initiative that can help you boost your trade performance and security. By becoming an AEO, you can enjoy various benefits that can give you an edge over your competitors. If you are interested in applying for the AEO status or want to know more about the program, you can contact us for assistance.



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Submit your query at eximfriend@eximclinic.com


Disclaimer: This blog is for informational purposes only and should not be construed as legal or financial advice. The information contained in this blog is not intended to be a substitute for professional advice. You should always consult with a qualified professional before making any financial decisions. The author of this blog makes no representations as to the accuracy or completeness of the information contained herein. The information in this blog is subject to change without notice. The author of this blog is not liable for any losses or damages that may arise from the use of this blog.

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