Once you have decided to embark upon a global trade journey, and have written your export or import strategy, it’s key that you measure up the financial risks.
This should include conducting basic credit checks on your customers and identifying any potential issues that may stop you gaining business or being paid. Risks may include:
If you are dealing in a foreign currency, when agreeing a price for your goods it’s possible that the exchange rates may change in the interim between the quotation date and the date of settlement. This can, of course, work to your advantage, but it is a gamble and you could just as easily suffer a financial loss.
You can eliminate foreign exchange risk by quoting in pound sterling. This essentially transfers the risk to your customer. However, if your competitors are prepared to invoice in the local currency you may have to do the same.
To minimise the risk of working with local currencies you can enter into a forward exchange contract with your bank. This is a formal agreement to fix the amount of sterling you will receive when payment is made in the foreign currency.
Always make thorough checks of your customers to establish that they are solvent. Other questions to be asked are: do they have a trading history and do they own/rent the premises from which they are trading?
Even in countries deemed low risk, it is still quite possible that you will meet customers who are high risk, so it’s worth doing extra credit checks to give you absolute peace of mind.
To avoid non-payment, it is advisable to take out Export Credit Insurance in both high and low-risk countries.
The country you plan to export to / import from
Depending on where your market is, you should be aware of local factors that could affect your trade:
▪ Foreign exchange controls which prevent the release and transfer of funds.
▪ Import restrictions imposed after the contract has been signed, so preventing the completion of the contract.
▪ Political events or economic measures that prevent or delay the transfer of payment.
▪ Instability of the local banking system.
▪ War, civil unrest and natural disasters.
Countries: United Kingdom
Topics: Finance, Getting Started, and Transport & Logistics