By Andy Moylan, Founder, the Export Hub
For 30 odd years I’ve worked with SMEs –the indisputable backbone of the UK economy. What I’ve found virtually without exception is they’re a hardy and tenacious group. They take risks. They have an appetite for growth. But when it comes to exporting their downfall more often than not is that they’re underprepared. They think their entrepreneurial spirit and business acumen are the sole determinants of success.
They play a big part. They’re not enough.
So in this article I focus on what a business should do on the finance front before they start exporting. It comprises a heady mix of growth and protection because the two go hand in hand together. It’s not a sexy subject I know (especially when compared to say marketing). But it must be combed over with a plan in place for a business to export – knowing they’re as protected and poised for growth as possible. Whilst I cover these essentials don’t hesitate to contact me or any member of my team for further hands on guidance.
- How will you fund your overseas export plan? Look at government backed schemes such as what is on offer from UKEF. Your bank may be your first port of call but there are other 3rd party providers of finance.
- What access to financials do you have in the country you are considering exporting to? And what financials do you need? How up to date, accurate and trusted is this financial information? Can you rely on it to make sound financial judgements?
- How will you manage your business at home when production demand from overseas kicks in? You need to look at storage costs, additional stock, increased demand on labour and your wage bill. Will you need to factor in payment of extra staff or overtime? Paying upfront for materials and packaging in the UK before getting paid plus the cost of shipping/cargo can eat into your cash flow massively. You may need to redraw agreements with existing suppliers to ensure delivery of raw materials and extended payment terms. Funding needs to cover this.
- You must understand the payment culture in the country and on an individual basis, how different stockists and distributors pay. For example in America big chains can demand 120 day payment terms on a sale or return basis. Satisfying big orders from a multiple looks great on the face of it but could take your business under by creating a significant gap in your incomings and outgoings.
- You will need to invest in legal agreements to protect from non- payment overseas and ensure that the terms of your trade credit insurance policy are being complied with.
- Look into appointing a collections agency with experience in collecting unpaid debt in the country you are exporting to. It is challenging to pursue unpaid debt when you don’t know the payment culture and you are on the outside looking in.
- Recognise the value of Trade Credit Insurance. It will protect your business and it is an enabler for growth. Offering credit to overseas and at home businesses and continuing to do so without monitoring any changes in credit status is one symptom of poor credit management procedures and processes that could crucify them when exporting. For example Trade Credit Insurance not only identifies the trading risk, it puts in place protection that can cover as much as 84% of your overseas invoices. Should a company covered by your policy fail to pay or become insolvent; your policy will pay out provided you have complied with your policy conditions. With the right advice and specialist Broker support you can trade overseas and offer credit terms to new customers knowing that your policy is not only an enabler for growth, it is also a vital safety net.
It is crucial that when considering exporting you recognize the importance of looking after your home business and ensuring it is financially stable before you export to other countries.
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