Managing business risk when selling goods and services overseas
Written by Yvonne Wedel-Andersen, Head of Operations, Bibby Financial Services
Exporting may seem like a challenge for many businesses, but if the risks are managed, it can be hugely successful, creating new sales opportunities and better profit margins. However, businesses must firstly understand the business risks associated with exporting in order to manage them effectively.
Here are the key areas businesses should consider when exporting:
In these times where both domestic and overseas travel is heavily restricted, working with customers via video calls can help level-up the playing field.
With many UK regions affected by Covid-19 restrictions, virtual trade meetings have become second nature regardless of the geographical location of the customer.
Other factors to consider when it comes to working with overseas partners are time zone differences and language barriers.
From January 2021 businesses need to be ‘Brexit Ready’. In the increasingly likely event of ‘No Deal’ businesses will not be able to rely on simplified regulations.
It is important to understand what is required, otherwise customs penalties and delays may be incurred. Freight Forwarders can help businesses comply with export documentation and customs requirements. Many exporters use the freight forwarder to act as their shipping agent to help transport goods.
The service industry is not unaffected, however, the Government has issued guidelines, which provide invaluable advice to businesses selling services in EU countries.
Local commercial laws and culture
Wherever in the world you may be selling a product or providing a service, research the local commercial requirements. This can affect anything from packaging and instructions to warranty obligations.
Understanding of local cultures is also key – how to conduct meetings, your attire, how to address people, right down to how you present a business card can have an impact on any future business relationship.
Terms and conditions of sale versus terms and conditions of purchase
It is vital that exporters have terms and conditions of sale that are fit for purpose. Many exporters become bound to the terms or contract of the buyer, but every exporter should have a checklist of terms and conditions that should include: terms of delivery, payment terms, a returns and quality policy and time limits pertaining to claims.
It’s important businesses include the applicable law governing the transaction or service provided. If businesses provide goods or services under the legal jurisdiction of the buyer, remember, if an adverse event should occur that requires litigation, the costs of attending the overseas market along with food, accommodation, local translation service and a lawyer, are all costs that come straight off the business’s bottom line.
At the back end of any transaction is the art of getting paid. The owner of the business you are working with may well speak perfect English but the back office team may not, they may also be difficult to get hold off if they are going home at the same time your credit controller is arriving for work.
Build relationships with accounts payable and resolve communication issues before they become a risk to your cash flow.
Mitigating credit risk
As global trade moves towards open account payment terms, understanding credit risk and protection against bad debts is essential. Whilst selling under letter of credit offers the most secure method of payment, offering open account payment terms can be advantageous to compete against the local market.
Trade credit insurance can provide businesses with protection from bad debts as well as political and economic risk cover when planning for the worst case scenario. Understanding credit risk and how to best mitigate it could be the difference between a profitable year and a year where avoidable losses are incurred.