Export Week: tips on exporting

Entering into international trade could potentially help you to access a larger customer base and expand sales of your products and services in a way that is not possible by focusing on the UK alone, says Mark Meredith associate trade director at Barclays.

However, it is important not to underestimate the risks that come with these opportunities.

When first considering growing your business in the international market you should take the time to review your export potential and produce an export plan with set focused objectives which are realistic as to what you can achieve within a given timescale. You will find lots of useful information and support to help you create your exporting strategy on the UK Trade and Investment (UKTI) website, including their Passport to export service. Researching markets you may consider is essential to help reduce your risk and improve your chance of success, remembering that each business and market is unique. UKTI can also support you with this through their research services.

Once you have decided on an appropriate overseas market you will most likely discover that there are buyers and competitors who are already there and may ask yourself how you can be sure you are dealing with reputable companies.

We suggest you undertake thorough due diligence on suppliers as well as end buyers. UKTI can support this by conducting a trade and credit (TCI) enquiry through their extensive overseas branch network to verify whether potential business partners are legitimate and have the financial strength required.

You should also carefully consider the potential linguistic and cultural challenges doing business overseas may introduce. The Export Communications Review (ECR), provided by the UKTI, can help you analyse your communications to improve them to suit your target markets.

It is also important to know at an early stage the regulation and legal requirements which must be complied with in the markets you are looking to enter.

Following this initial research, you should assess the risks involved with exporting and consider potential ways to mitigate these. Firstly, buying and selling across borders can mean navigating complex foreign exchange controls and managing fluctuating currency rates.

Most risks associated with currency volatility can be mitigated by solutions offered by banks, e.g. forward exchange contracts put in place at the time of sale, and we would advise businesses to consider these to protect their risk exposure. Secondly, non-payment risk is another potential risk as very often winning export orders means giving an extended period of credit to your buyer.

We would recommend you to speak to your bank early in the process of negotiating the sales contract so that the right terms can be agreed with your buyer. A range of solutions are available to safeguard against the risk of non-payment, from Letters of Credit and Documentary collections through to credit insurance cover.

Another potential risk is related to the cashflow strain your business may face as exporters are typically required to manage a longer trade cycle than those businesses that are focussed solely on the domestic market – a typical trade cycle in the UK would be between 30-90 days but when exporting this can increase to 120-240 days or more. This higher working capital requirement usually means increased financial support is needed.

A trade loan is one solution that can help you manage your cashflow needs as it can be used to bridge the working capital gap between payment to your raw material suppliers and the receipt of sales proceeds from your end buyers. In addition, you should also consider the political risk involved in entering overseas market, such as the impact of government change, war, terrorism and changes in law on your business.

Thorough research of your potential markets, supported by the UKTI, as advised above will help to mitigate this. Logistics also remains a key issue and potential risk for exporters as the process of moving goods between two parties has strong potential for problems. This should therefore also be a key part of the initial export planning process to help mitigate this risk with the following considerations: when the title of goods is transferred; customs and excise requirements in the UK and destination countries; the types of transport required and the companies to be appointed; details of documentation required; whether sanctions or embargoes are in place wherever your goods are moving.

In conclusion, we would encourage any business, which has not already, to consider the international market and whether they are in a ready position to export their product or service. We would recommend extensively researching the areas mentioned above and carefully considering the risks highlighted and the mitigates available for these.