Trading internationally from the UK doesn't just present challenges such as dealing with different business cultures and the complexities of customs clearance. It can also significantly increase the financial burden and risks you are exposed to.
Longer delivery times mean there is a delay between when you incur costs meeting the order and when the customer receives their purchase - a delay which needs to be financed. While suppliers want to ensure that they are paid, customers want to know that the goods will be delivered before paying for the goods. Dealing in foreign currencies can add an extra element of risk.
Import and export finance options
Within the UK and EU, it's common practice to sell on open account terms to creditworthy customers. An exporter might finance this using their normal forms of business borrowing.
At the other end of the scale, for an exporter selling low value goods to individuals this kind of arrangement is likely to be too risky. In this position, a reputable supplier may be able to require payment in advance.
Other forms of export finance allow the supplier and the customer to share the risks and financing in different ways. Involving banks in dealing with bills of exchange or letters of credit helps reduce the risk of either non-payment or non-delivery.
At the same time, you need to agree what currency will be used for the deal. If you're dealing in a foreign currency, you will need to be able to make (or receive) payments in that currency. You may also want to talk with your bank about how to protect yourself against possible changes in the exchange rate.
Sharing the international trade finance burden
The way you finance your international trade will depend on your particular circumstances.
As with domestic sales, it's not unusual for the exporter - keen to make the sale - to take on much of the financing burden. But this sort of arrangement can present unacceptable risks when dealing with new customers or those outside the EU. Equally, as a customer you may not want to commit to any payments without being sure that the right goods will be delivered.
The way costs and risks are shared is likely to be reflected in the overall price you agree. The best deals tend to reflect each side's different strengths. For example, a company that regularly trades internationally may be better placed to build up expertise in dealing with foreign currencies.
This sharing of the burden, together with the costs and complexity involved, mean that international trade finance can't just be left to the exporter. If you are buying from an overseas supplier, you need to understand the different import finance options and what's involved in dealing with them.
