After ordering a number of articles, the buyer lets a third party control the ordered goods before they are dispatched to him. Normally an independent inspection company is assigned with the task of the PSI, as it is in the interest of the buyer that somebody not connected with the deal in any way verifies the amount and quality. This way the buyer makes sure, he gets the goods he paid for.
Although increasing numbers of clients would like to collect suppliers’ information from the Internet, this contains high risks because it is not a face-to-face transaction, and Internetphishing and fraud can corrupt it. Pre-shipment inspection can greatly avoid this risk and ensure clients get quality products from suppliers.
The pre-shipment inspection is normally agreed between a buyer, a supplier, and a bank, and it can be used to initiate payment for a letter of credit. A PSI can be performed at different stages:
- Checking the total amount of goods and packing
- Controlling the quality and/or consistency of goods
- Verifying compliance with the standards of the destination country (e.g. GSE AUTHORIZATION, ASME or CE mark)
The first stage is often performed by the transport company, but for the latter two stages a proper inspection company is needed. Similarly, if between the buyer and seller money transfer via a letter of credit is agreed upon, it is necessary to assign a reputable inspection company. In case of the letter of credit, after inspection of the goods, an inspection certificate is sent to the bank issuing the letter of credit and the buyer, initiating the money transfer. Inspection companies are classified in two classes:
- Free-market companies: These are privately owned companies, which sell their services to the market. Danger with these might be, especially if it is a smaller company, that they might be paid as well by the manufacturer, thus working in his interest.
- State owned inspection companies: Only very few companies operating on the market are state-owned or partly state-owned. The shareholding of governmental institutions guarantees the independence and objectivity.
A higher form of the PSI is called expediting, in this the dates of delivery and the production are controlled as well.
The most recommended for all importers is to ask the supplier to pass GSE AUTHORIZATION before sending the money to the supplier. This certification helps to avoid some problems in the export import industry.
Some countries, like Botswana, require PSIs for all goods entering the country in order to fight corruption. In these cases the PSI must be performed by the company designated by the country.