Customs duties paid on a client's behalf
How a clearing agent records customs duties it pays for clients through a clearing account, so the money never inflates its own income or costs.
By Achekam · · 4 min read · For Logistics businesses in South Africa, Nigeria, Kenya
A clearing and forwarding agent can pay out more in a week than it earns in a month. A container of machinery lands, the duty and import VAT are assessed, and the agent pays them so the goods can be released, then recovers the money from the importer. The agent's own income is the clearing fee and the handling charges. The duty was never its money.
When duties paid for clients run through the agent's income and expenses, the books tell a strange story: turnover several times its true size, margins that swing wildly with the value of the goods cleared, and a VAT position that is hard to explain. This article shows how a clearing agent in South Africa, Nigeria or Kenya can keep duties paid on behalf of clients in their own lane in Achekam, from the payment to the recharge.
Disbursement or income: why it matters
Duties paid for a client are a disbursement: money the agent pays as the client's agent and recovers at cost. The agent's fees for clearing, documentation and handling are its income.
Keeping the two apart matters for three reasons:
- Real performance. Revenue and margin should reflect the agent's own services, not the value of the cargo.
- Cash control. Duties paid but not yet recovered are money the client owes; they should be visible as such, not buried in "cost of sales".
- Tax. Duty and import taxes paid as agent may be treated differently from the agent's own supplies. Your adviser should confirm the treatment for your country and your contracts.
Who bears duties in the first place depends on the trading terms between buyer and seller. The ICC's page on the Incoterms rules explains the trade terms that set who pays for, and carries the risk of, goods at each stage of delivery, which is often where a dispute about who owes the duty starts.
A clearing account for duties paid on behalf
Each business has its own chart of accounts, and accounts can be added, renamed or switched off. Add one account:
| Account | Type | Holds |
|---|---|---|
| Duties paid on behalf of clients | Asset (clearing) | Duty and taxes paid for clients and not yet recovered |
Some agents add a second clearing account for other disbursements, such as port charges, storage and demurrage, so duties can be reviewed on their own. Either way, these accounts should never be expense or income accounts: they hold money owed to the agent by clients, and should empty as clients are invoiced.
Recording the payment from the bank line
Duties are usually paid by electronic transfer or through a customs payment system linked to the agent's bank account. When the bank statement is imported, bank lines are matched by suggestion and a person accepts each match. A line not yet in the books becomes a suggested journal a person approves.
Approve each duty payment against the clearing account, not an expense, and put the client's name and the customs entry or declaration number in the description. That one habit makes everything else possible: the clearing account becomes a list of entries, by client, that can be checked against invoices.
If several entries are paid in one transfer, split the payment with a manual journal from your customs payment schedule. A business can post manual journals, and an unbalanced one is refused, so the split has to add up to the bank line.
Recharging on the client's invoice
The recovery goes on the client's invoice, as its own line, described clearly: "Customs duty paid on your behalf, entry [number]". A business creates customer invoices as drafts it can change or delete, and issuing one takes the next number and posts it to the ledger as debtors, sales and output VAT.
Two details need care:
- Revenue account. All invoice revenue currently posts to one account, Professional Services Revenue (4100), and an invoice line cannot name another sales account. The recovered duty therefore lands in revenue. At month end, post a journal that moves the recovered amounts from 4100 to the clearing account, so revenue shows only your fees and the clearing account shows what is still to be recovered. Agree the journal's form with your accountant.
- VAT on the line. South African agents set each line to 15% or 0%, and the invoice screen does not tell zero-rated and exempt apart. Nigerian and Kenyan agents pick a tax code per line (standard, zero-rated, exempt, out of scope or reverse charge), and only standard lines carry VAT. Ask your adviser which treatment a duty recovery takes, and use it consistently.
Proof matters to clients: attach or send the customs assessment and payment confirmation with the invoice, and keep copies on file with the delivery records, as described in proof of delivery files.
Reviewing the clearing account monthly
At month end, the general ledger lists every posted line in the clearing account, and the trial balance shows its balance at the date. The balance should equal duties paid for entries not yet invoiced.
A short review:
- list the clearing account's open items by client and entry number;
- for each, confirm whether it has been invoiced, and if so why it still shows;
- investigate anything older than your normal billing cycle;
- check that the month-end reclassification from 4100 has been posted.
An old item in the clearing account is usually an unbilled recovery: money paid out for a client that nobody has asked for back. Duties paid near month end for clearances invoiced the following month are a timing difference, of the kind discussed in month-end accruals.
Set it up before the next clearance
Create the clearing account, brief whoever approves bank lines to use it for every duty payment, and add the month-end reclassification to your close checklist. After one month, your revenue line will show what the business actually earns.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
