Minimising risk

Exporting can be a path to growth, but there are some areas you should research to ensure that expanding into overseas markets brings rewards, not problems.

Product risk

  • Your product must comply with all the relevant regulations and standards set by the countries you are exporting to. You may choose to introduce changes yourself, eg introducing cheaper materials for a different marketplace. Any modifications will affect your budget.
  • A move to exporting often leads to changes in manufacture and supply. You need to be vigilant about maintaining standards if you transfer any manufacturing overseas or grant an overseas licence that includes production. You should always ensure that your designer's specifications are strictly adhered to.

One very obvious implication for your product arises if you are exporting to countries with different languages. Your packaging, product literature, advertising and point-of-sale material will all need a re-design. You may also need to review all of your marketing communications materials for other English-speaking countries because of cultural differences. An example of this is if your advertising relies on irony - the American market may have a different sense of humour and so not respond very positively.

Credit risk

A key risk for exporters is that your customers will fail to make prompt (or any) payment. It is vital you protect yourself against this. Measures include:

  • Insuring against non-payment of export invoices with a specialist provider or arranging for your bank to take over the risk (e.g. discount your export sales ledger).
  • If you have the slightest concern over your potential customers' ability to pay, try to negotiate payment up front; or, if it is a big project you are working on, at least ask for stage payments. If you know your buyer well, you could arrange an open account whereby you invoice and they pay you within a stipulated timeframe. You could also consider a collect-on-delivery arrangement with your customers, which gives you more security until you are able to establish a relationship. Alternatively, ask for a Letter of Credit from the customer's bank - which effectively means their bank guarantees the payment. Beware, however; that over 50 percent of letters of credit are turned down when first presented to a UK bank, usually because of documentation failures. If you require further reassurance on a customer's financial security, The British Chambers Of Commerce can help trace companies in the UK and worldwide. For a small fee, it can also conduct press searches on companies or personalities, and can provide credit ratings or in-depth financial accounts for a UK or international company.
  • Ask your suppliers for extended terms while you are trying to develop demand from overseas and establish a trading pattern.
  • Familiarise yourself with settlement terms as they vary greatly from country to country (e.g. 30-60 days in Germany and Norway, 90-120 days in Greece and Turkey, and 120-150 days in Uzbekistan).
  • Take guidance about what the norm is in the markets you move into and protect yourself as much as possible in any pre-agreed partnership contracts. In general terms, Western Europe operates on an open account basis, whereas Eastern Europe tends to use letters of credit.
  • The Export Credit Guarantee Department Schemes introduced in 2011 can provide additional support for your exports. You can find out more at UK Export Finance or talk to your Lloyds Bank International Business Manager.

Above all, if you are in any doubt, you should seek professional guidance to help you manage your credit. The British Chambers of Commerce can point you in the right direction.

Exchange rate risk

Exporting obviously makes you prey to exchange rate fluctuations.

There are a number of ways you can protect against currency fluctuations, including:

  • If you match your income received in a particular currency by your expenditure in that currency, you can offset any adverse financial implications.
  • Another rising trend of UK exporters is to borrow money in the currency of the country to which you are exporting - this is particularly effective in the Eurozone (the 12 countries participating in the euro) with its low interest rates.

The British Chambers of Commerce can advise you on getting help to manage your exporting finances.

To help you see the potential impact of exchange rate fluctuations, take a look at our handy export cashflow calculator.

Operational risks

Sustained export success is dependent on mastering international trade procedures. Investment in training and computer software may both be needed to aid your management of trading (and payment) processes. What you are exporting and where it is going obviously determine the kind of procedures you need to employ, but key procedures usually include:

Export documentation

Chambers of Commerce offer guidance and training courses on paperwork for the movement of goods. Certificates of origin are often required to meet customs and quota requirements in the importing state, and the Chambers of Commerce are the designated authorities for the issue of EU certificates of origin. The service is available to all businesses in the UK at a reasonable cost, although Chamber members receive beneficial rates.

Logistics

The movement of your goods will play a key role in facilitating your global commerce. To ensure the mode of transport and packing is best suited to your product, first-time exporters can discuss their plans with their local Chambers to check that they haven't missed anything.

You can get help with the packing and shipping of your goods from a forwarding agent. Finally, your goods should be insured. Although there is no legal obligation to do so, it is generally advisable. Marine insurance is a general term used to describe cover against damage and loss for goods while in transit. Policies will also cover road, rail and air freight.

Licences

Governments control the export of goods and technology primarily to control the transfer of arms. This includes many items designed for civil use but termed 'dual-use' because they could be used for military purposes. These items include:

  • machine tools,
  • electronic equipment,
  • computers,
  • telecommunication equipment,
  • related components and spare parts.

The licenses are controlled and issued by the Export Control Organisation (ECO) of the DTI. It is vital that if you are in any doubt of your need for a licence that you seek legal guidance, irrespective of the destination of your goods.

Back to top

 
3 people found this page helpful.