Looking to export? Plan your export finances

Plan your export finances


Be smart and plan your export finances

Export should be seen as an investment, covering the initial costs of research, developing contacts, and the losses incurred before sales. It's also worth keeping in mind that it may be necessary to explore separate financial arrangements in order to support your exporting ventures.

Market intelligence and due diligence

It is essential that you assess the financial risks and potential issues for your business that are associated with exporting, by conducting basic credit checks on potential customers and identifying possible reasons that could affect payments or gaining business.

Customer Research – Are they are solvent and do they have a trading history? Do they own or rent the premises from which they are trading? For your security, additional credit checks are always advisable for likely high risk customers. Also to avoid non-payment, it makes sense to consider taking out export credit insurance.

Foreign Exchange – When dealing with foreign currency, it is quite possible that exchange rates will change between the quotation date and the date of settlement. Whilst this can be advantageous, it can also work against you and result in your financial loss. Quoting prices in £ sterling transfers the risk to your customer’s however you may need to consider, if your competitors invoice in the local currency, whether you might have to do likewise. However you can enter into a “forward exchange contract” with your bank, which is a formal agreement that fixes the sterling amount you receive, when payment is made in the foreign currency.

Global Market Awareness – It goes without saying, that post-Brexit, you will need to foster and maintain an awareness of local factors that could affect successful trading with customers in a particular country – issues to consider are:

- Foreign exchange controls that might prevent the release and transfer of funds

- Import restrictions imposed after contract signing, preventing it’s completion

- Political events or economic measures that prevent or delay payments

- Instability of the local banking system, money laundering or corruption

- War, civil unrest, or natural disasters

 Building your global pricing strategy

Whilst your basic unit cost can be the starting point when planning your global pricing strategy, you should review all aspects of your pricing to ensure profitability.

Market Research - Do your market research to identify whether modifications might be required to your products or services to meet the needs of your overseas markets. Consider standardising any product developments to avoid additional stock holding or labour costs.

Localisation - Assess whether translation or localisation of your website, promotional literature, supporting documentation or packaging is necessary and the cost implications.

Insurance - You will need to consider taking out insurance, whether this relates to product transit, the financial transaction risks or protection of your intellectual property abroad.

Tax/VAT - In addition sales tax and local duty/VAT costs can impact your export pricing plan, depending whether or not you are exporting within the EU or to a country outside the EU. International tax regulations are a somewhat daunting prospect, so seek advice that fits your business - this pocket guide to cross-border tax is a great starting point.

Delivery - Factor in the costs of delivery and documentation, especially when dealing with markets that require the legalisation of documents and/or certificates of origin - you can get help on what is required from the British International Freight Association (BIFA).

Inspection - Successful and undamaged delivery of your products is vital. So you may need assistance by using inspection services, such as SGS or Bureau Veritas, to help monitor the export progress of your products, should corruption be a problem for example.

Incoterms - Use the internationally recognised Incoterms® 2010 to define the transportation costs & responsibilities, associated with the delivery of exported goods.

Using trade finance to help export sales

Effective management of your working capital and keeping the balance right between making purchases and sales will remain the same for any company that wants to export abroad. However it will bring a new set of challenges – increased lead times and the additional costs relating to export including exchange rate fluctuations. Seasonality can also have a big impact, depending on your product or service and where you might be exporting to.

Trade Cycle - Every business transaction has a trade cycle – the period between receiving an order and receiving payment. International exports raise the logistical challenge of lengthened trade cycles, which can mean the need for more finance, less control of your stock and debt collection becoming more difficult.

Trade Finance - This helps both exporters and importers manage this trade cycle funding gap and can be an effective way to mitigate risks on both sides. It does this by helping to settle the conflicting needs of the exporter and importer by acting as a third party, to reduce both the payment and supply risk. By giving your overseas customers time to pay, while protecting your cash flow, can increase your capacity for growth, however whether this is an appropriate option for you will depend on your company’s financial situation.

Trade Finance

For the Exporter - their risk reduces if the customer can pre-pay for any goods being shipped. To facilitate this, the exporter’s bank can make a loan to the exporter, on the basis of the export documentation, e.g. a bill of lading, which confirms the shipment. This mitigates payment risks from the customer & benefits the exporter, who receives payment sooner.

For the Customer - their risk reduces if the exporter has to document that goods have been shipped. To facilitate this, the customer’s bank can provide a letter of credit to the exporter’s bank, providing for payment upon receipt of the export documentation, e.g. a bill of lading. This mitigates supply risks from the exporter & benefits the customer, who receives extended credit on their payment.

Get Help - Remember it is important to get help from your bank, export agencies and others who can provide guidance and financial support, to make sure that you continue to manage your working capital effectively, when exporting abroad.

Understanding your payment choices

There are four main methods of payment which vary in security. Depending on the result of customer credit checks and the effect of exporting on your working capital, you should assess which might be the most appropriate option, by reviewing the degree of risk and the potential benefits.

Letter of Credit - To help reduce the risk of non-payment it can be prudent to request a letter of credit from your customer, which is issued by their bank and guarantees that payment will be made. This offers you a high level of security, although you have to agree to terms set out by the bank, e.g. to provide documented proof that the contracted goods have been supplied. It is advisable to ask your bank to confirm any letters of credit, which will mean your bank will make the payment in the event that your customer’s bank doesn’t. You should also obtain an “irrevocable” letter of credit which cannot be changed or cancelled, unless all parties are in agreement.

Full Payment - Full payment in advance of delivery, before shipment of the goods, is the most secure option for the exporter.

Bank Documentary Collections - This recognised procedure is used in international trade, whereby a bank in your customer’s country acts on your behalf to collect payment for your goods. The exporter prepares a “bill of exchange” stating how much is to be paid and when and once the customer accepts this, they are legally liable for payment. The bank takes receipt of all shipping and collection documents, which are sent via your own bank and hand them over to your customer in exchange for payment of goods. You receive your payment and your customer now has the documentation to collect the goods.

Open Account - This is dependent on a good and trustworthy business relationship, whereby you agree to ship the goods to your customer and then issue them with an invoice for payment. Credit terms such as ’30 days from invoice date’ are customary, however it goes without saying that this method comes with the highest risk.

It is vital that you co-operate with your customer on getting the paperwork right – they should tell you what they require – for example, a set of commercial documents in the local language. To help with this, many businesses use the services of a freight forwarder or import agent. However you should remember that it will be your company who is ultimately responsible for ensuring you have accurate and fully complete documentation, even if you are not the ones actually completing it!

All you need to know about exporting goods outside the EU

Get Help & Advice from the Experts!

Guidance as well as online information about exporting is widespread, so it is vital that you make the most of the knowledge that is available from experts. This will be especially important in the light of Brexit and the impact this has had on both European and global trading markets for UK exporters.

– Use Kompass Business Data to research and find contacts in your target markets.

– Department for International Trade Advisers should be considered key contacts for help and advice.

– Your Local Chamber of Commerce can help with export documentation and finance.

– UK Export Finance provides trade finance and insurance for exporting.

– B2BCentral works with partners to bring the benefits of B2B eCommerce to British SMEs.

– The Institute of Export gives advice, guidance, offers courses and qualifications.

– Find new export markets with a personalised Market Ranking Report from Kompass.

– Build your brand & global online presence with Kompass Digital Marketing solutions.

At Kompass we have more than 60 years experience, helping businesses grow – providing our customers with business data to help improve the results of their sales and marketing activity and driving relevant enquiries through globally optimised company profiles from more than 7.5M Kompass users. Contact us to find out more about how we can help you as you plan your export strategy.

Our Kompass Export Zone builds on our business information expertise, by giving access to straightforward guidance on some of the key factors to consider when exporting, research advice and country specific market information. For more advice on getting started on your export journey, see our 8 top tips on how to get paid when exporting.

Disclaimer: Please note that this blog only contains general information and insights about legal matters. The information is not advice, and should not be treated as such. Kompass.com