If your company imports materials, components, or products for processing that are later re-exported, you may be paying more in duties than you need to. Inward Processing (IP) allows you to suspend or relieve customs duties and VAT on those goods while they are being manufactured, repaired, or processed. You may pay nothing when the finished products are re-exported, and you can delay payment entirely if part of the production stays in your home market.
Inward Processing sits at the intersection of finance, operations, and compliance. When managed effectively, it becomes a lever to improve cash flow, protect profit margins, and strengthen compliance, all at once.
This article draws from insights shared during our Special Procedures Webinar. It’s written for customs managers, supply-chain leaders, and finance executives looking to understand how Inward Processing can drive both operational efficiency and financial value.
TL;DR: The benefit of Inward Processing
During our webinar, 46% of attendees said they are currently exploring Inward Processing. The most common reason? Reducing customs duty costs. Others cited improved visibility, audit readiness, and digital transformation.
For finance and operations leaders, the appeal is clear. Inward Processing can:
-
Cut duty and VAT costs by suspending payment until the point of discharge.
-
Boost cash flow, keeping capital inside the business for longer.
-
Protect margins, enabling more competitive pricing in international markets.
-
Strengthen compliance through automation and traceability.
As one of our speakers noted, “IP is one of those procedures that’s heavily underused, but incredibly powerful once implemented.”
Where the Savings Come From
There are two main methods of calculating the duty benefit under Inward Processing.
The Input-Based Method
This approach calculates duties based on the imported raw materials that eventually enter free circulation.
-
Example: You import goods worth €1,000,000 with a 5% duty rate, creating a suspended liability of €50,000.
-
If 75% of those goods are re-exported, you’re fully relieved on €37,500 and only pay duties on the remaining 25%.
This method works best for companies with predictable bills of materials and a high proportion of goods that are re-exported.
The Finished-Goods Method
Here, duties are based on the rate of the finished product when it enters free circulation. If your finished goods are duty-free (0%), you pay nothing, even if your raw materials had a higher rate.
This is especially beneficial for manufacturers in food, beverage, and packaging industries, where materials such as aluminium or glass carry high import duties but finished goods often do not.
The takeaway: the higher the import duty and the greater your re-export ratio, the bigger the savings potential.
From Factory Floor to Finance, Real-World Examples
IP isn’t just for large manufacturers; it applies across sectors. For example:
-
A bike manufacturer imports wheels, screws, and frames under IP. Duties and VAT are suspended while the bikes are built. Once exported, the duties are relieved. Only the portion sold domestically triggers duty payment.
-
A processor imports crude oil, refines it into finished products, and re-exports it. The IP process must track by-products and waste, manage yield changes, and ensure compliance, all of which can be automated through software.
In both cases, IP offers measurable financial gains, but only if the tracking and discharge process is managed efficiently.
Common Challenges and How to Overcome Them
Implementing IP isn’t without its hurdles. From our webinar polls and client feedback, companies often face four recurring challenges:
Complex Setup and Compliance
Obtaining authorisation, configuring codes, and managing guarantees can seem daunting. The fix? Automate. A modern customs system validates data, manages throughput periods, and ensures every movement is traceable.
Tracking Inputs and Outputs
Many businesses still rely on manual spreadsheets to link imports to exports, which can be extremely error-prone. Integrating ERP or WMS data can transform this, creating automatic write-offs and an auditable trail.
Limited Resources or Expertise
Smaller customs teams often lack the capacity to maintain complex Excel models, and creating the Bill of Discharge can be a challenge. Automation removes manual reconciliation, freeing staff for higher-value strategic tasks.
Unclear Business Case
Savings depend on duty rates, re-export ratios, and finished product classification. A data-driven analysis can reveal the true financial impact, including VAT deferral and broker cost savings.
Customs authorities are also pushing companies to digitalise. Increasingly, they expect system-based reporting, not spreadsheets, especially for discharge and audit validation.
Making the Financial Case
The ROI of Inward Processing can be huge.
In one business case, a company filing around 10,000 customs declarations per year was paying approximately £500,000 annually to brokers. By implementing a customs automation solution and insourcing operations, annual costs fell to roughly £85,000, generating immediate savings of over £400,000.
When IP duty relief was added to the mix, worth an additional £235,000 annually, the total financial benefit was nearly £650,000 per year.
Add in the working-capital improvement from deferred duty and VAT payments, and the payback period for system implementation becomes impressively short.
For CFOs, this is where IP stands out: it offers a measurable financial return while simultaneously strengthening governance.
How to apply and get started with Inward Processing Relief
Implementing Inward Processing successfully requires both preparation and partnership. Here’s a practical roadmap:
-
Align stakeholders across customs, supply chain, finance, and procurement.
-
Quantify the potential savings by analysing re-export share, duty rates, and finished product classifications.
-
Map your processes from import to production to export, including losses and by-products.
-
Apply for authorisation with customs, defining realistic throughput periods.
-
Systemise operations by integrating ERP/WMS data and automating discharge reporting.
-
Start small and scale, pilot one product family, prove the results, then expand.
Our poll data shows where to focus investment: integration with ERP/WMS systems (37%) and better reporting/audit tools (23%). These two enablers unlock the rest.
How IP works in CAS
Watch this video and read our whitepaper on Inward Processing.
Final Takeaway
IP is far more than an administrative procedure; it’s a strategic financial lever. The right setup can transform how your business manages cost, cash flow, and compliance.
- It reduces duty and VAT spend.
- It strengthens cash-flow management.
- It delivers audit-ready transparency.
- And it can often be self-funding, thanks to the savings from broker fees and deferred payments.
For companies that trade globally, IP shouldn’t be just an option, it’s a competitive advantage.
Ready to Explore Your Numbers?
If you’re among the many businesses considering Inward Processing, we can help you quantify the opportunity during a free customs strategy session. Our team can discuss the potential savings and compliance improvements.
We’ll also demonstrate how CAS automates every stage, from declarations and stock movements to period-end discharge reporting, so your team can focus on what really matters, running an efficient, and compliant customs operation.
Get in touch today.
