What a failed claim costs, and when it is paid

The bill, and the year it arrives in

On 9 June of year three the preference was denied on entries 2, 4 and 5. The claim on the other two stood.

Look at when that lands, not at how big it is.

The goods entered in the spring of year one. They sold through in the autumn of year one. The style was dropped from the range in year two. The margin on it was booked, reported and spent in a financial year that is now closed. And the demand arrives in year three, against a company that has nothing left to price it into.

That is what makes a preference failure a different animal from a costing error. You find a costing error while you can still do something: reprice, renegotiate, drop the style, take it out of the next order. You find a denied preference when every one of those doors is shut. The duty is charged on shipments that have already been sold, at a price that already went to a shopper, in a season that has already been reported.

One way to feel the size of it: USD 27,682.74 is the entire preference on 24,498 pieces. Ardsleigh will have to earn that back on a season that has not shipped yet, out of goods that have nothing to do with the mistake.

Against what it would have cost to prevent

Now put the cost of preventing it beside that, for the same order. Every figure here was priced in lessons 3 and 4.

USD 27,682.74 against USD 188.02. The demand is 147.24 times the prevention.

Per piece it is starker still, because the two numbers spread over different things. Prevention is USD 0.0052 a piece across the whole order. Half a cent. The demand, spread across that same whole order, is USD 0.7690 a piece. Half a cent against seventy-seven cents.

And keeping the yarns apart was the expensive of the two routes. The inventory-management method from lesson 4 costs Sabtah one day of systems work to change the yarn issue note, at USD 190.00. After that it costs half an hour a month of the store keeper's time, at USD 5.90 an hour. That is USD 225.40 in the first year and USD 35.40 a year after that, covering everything the mill produces, for every customer, under every arrangement.

USD 225.40 against USD 3,274.74 of interest alone. The interest on this one file is 14.53 times the whole first-year cost of the fix.

The live season, split into two halves

Here is the decision that was actually on the table in June of year three. It is the reason this lesson is not simply an autopsy.

Ardsleigh has 44,000 pieces of the same style in production at Hasbani for the current season, from the same mill, under the same practice. At USD 1.13 a piece that is USD 49,720.00 of preference, all of it exposed to exactly the same finding.

But the season splits in two, and it splits on a date rather than on a decision.

• 17,600 pieces are already cut, from fabric knitted and dyed before anything changed. Those are worth USD 19,888.00, and nothing can be done for them. An inventory method chosen today cannot describe a dye lot run in March, and no document written now becomes a record made then.
• 26,400 pieces have not been knitted yet. Those are worth USD 29,832.00, and they can all be saved. Choose the method this week, or ask Sabtah to run the remaining yardage against Qatrana yarn kept separate.

The fix that costs USD 225.40 protects USD 29,832.00 of this season alone. That is 132.4 times, before a word is said about the seasons after it.

That is the shape of every preference problem found mid-flight. Part of it is already a loss, and part of it is still a decision. The boundary between them is the date the fabric was made. Not the date the order was placed, not the date it ships, and not the date anybody found out.

The three things on the table for the part that is lost

For the 17,600 pieces already cut, and for anything already shipped under the old practice, there are three positions and no fourth.

1. Stop claiming. Enter the goods at the full rate and pay the duty that was never in the price. It is certain, you can budget for it, and it is over.
2. Keep claiming and hope. This is not a strategy. After a refusal on the same facts it is considerably worse than one.
3. Tell them first. Most administrations treat an error a company brings to them differently from one they find themselves. The conditions and the effect are set by that market's own law. It is a decision to take with professional advice, not from a course. What is worth knowing here is only that the option exists, and that it stops being available the moment somebody writes to you.

Ardsleigh took the first for the cut goods and chose the inventory method for the rest. Course 8.5 works through who ends up carrying a demand like this, between buyer and factory, and what an origin warranty in a vendor agreement does about it.

Act as an import compliance manager who prices exposures rather than describing them. Work only from the figures I give you and show every step so I can check it. My style and market: [STYLE, IMPORTING MARKET]. Duty a piece if the preference is denied: [AMOUNT PER PIECE — a money figure, not a rate]. Pieces already entered under the claim, by entry, with the entry dates: [LIST]. Pieces in production now, split into those already CUT and those whose fabric has NOT yet been made: [FIGURES]. The weakness in the claim: [DESCRIBE IT — for example, the mill cannot say which yarn receipt fed which dye lot]. What it would cost to fix at the supplier, as a one-off and as a recurring cost: [FIGURES, OR ASK ME]. Produce four things. First, the exposure on goods already entered: pieces times duty a piece, entry by entry, with a total, and a line saying plainly that this part is a cost to be taken rather than a decision to be made. Second, the live season split in two: the part that cannot be made provable because the fabric already exists, and the part that can, with the money on each side. Third, the ratio between the cost of the fix and the value it protects, and the same figure expressed per piece so that it can go on a cost sheet. Fourth, the three positions available on the part that is already lost — stop claiming, keep claiming, or disclose the error before anybody asks — with what each one means, and a clear statement that the third is a decision to take with professional advice in my own market. Do not estimate interest or penalties unless I give you the figures, do not invent a probability that a claim fails, and do not quote a duty rate, a legal deadline or an article number.

What you should be able to do now

Take your largest preferential programme and work out the two numbers from this lesson for it. What one season's preference is worth, and what it would cost to make it provable at the mill. If the second is not a small fraction of the first, check your arithmetic, because in every case anybody has measured it has been.

Lesson 6 puts both numbers where they belong: in front of the person choosing the factory, before the season starts.