It is often remarked that globalisation has made the world smaller, technology has improved communications, enabling overseas businesses to trade with each other more easily. At this moment in time small and medium sized companies have the unprecedented opportunity to do business in new and emerging markets. In fact emerging markets are the key to growth for so-called ‘Mittelstand’ firms, medium sized businesses that have ventured into new markets to fund growth.
Trading overseas can be a minefield of currency fluctuations, legal complications and communication problems. There are numerous pitfalls: relationships with suppliers and distributors can breakdown - and worse still, leave you out of pocket. Special attention needs to be paid to your overseas transactions if you want to stay ahead. Here are a few suggestions for you to consider.
- Payment terms
Sadly UK law won't apply in many of your overseas transactions, it is important to limit your risks as much as possible to ensure you get paid. There are a number of ways you can arrange payment: in advance, with a letter of credit, with a 'bill of exchange' once the goods are in the customer's hands, and by invoicing. To decide how to arrange payment, you should balance your risks against your customer's requirements and expectations. If you are a growing business you have to watch your cash flow, international trade puts you at the mercy of lengthy payment terms and thus limiting the amount of working capital you have available. Banks as well as alternative invoice financiers like MarketInvoice can aid high growth businesses with trade finance.
- Managing currency
Fluctuations in Sterling will affect how much you can afford to buy and sell when you draw up a contract with your overseas suppliers or distributors, as well as when you make or receive a payment, the eurozone crisis doesn’t help either. It is a good idea to plan ahead if you can, speak to your bank or alternative currency provider about pre-booking or pre-purchasing currency at preferable rates, FX providers can help streamline the process also. Forward contracts can provide protection from currency exchange rate fluctuations by locking in an exchange rate over a specific period. That rate is determined when a contract is purchased based on the period chosen, helping to control cash flow by locking in future costs, and minimising risk.
Insurance against non-payment by overseas customers will prevent a delayed or lost payment from having serious consequences. Make sure you the factor cost of insurance into any pricing discussions because it could raise the cost of the goods for the buyer, and then decide whether you want to go for commercially available insurance, or government-supported insurance.