Thinking of Exporting?  What Every CFO Needs to Know

Rachel Mainwaring, Operations Director, Creditsafe

For UK businesses looking for growth, there are many factors pointing towards stepping up efforts to gain market share overseas.

A recent report by Alibaba Group’s research firm AliResearch shows that global cross-border commerce is expanding at a rapid rate.  Forecasts expect its value will hit the $1 trillion mark by 2020 – a figure that looks even more remarkable when considering that it stood at only $230 million in 2014.

At a time when the UK economy faces an uncertain outlook and with the prospect of Brexit potentially dragging down European demand, looking further afield may be an answer.  What’s more, the decline in the value of the pound has made British goods and services more attractive to foreign buyers.

Doing business on a global scale is now more accessible than ever in our digitally powered and interconnected world – but research has shown that this is not something UK businesses have been especially good at.  A study from the Centre for Economic and Business Research (CEBR) found that there could be as much as £141.3bn overseas sales available in new markets for SMEs – but Britain was amongst the five worst performing countries in Europe for SME exports.

Common challenges

Why is this?  There’s no doubt that doing business with overseas businesses can be a daunting prospect.  Not only finding customers, but the whole process of managing the relationship, exporting the goods or service, and then of course the issue of invoicing and payment.  It can seem fraught with difficulty and so, perhaps, some businesses simply shy away from it.

Research by the Economist Intelligence Unit found the biggest worries centred on payments.  Of the 500 companies surveyed worldwide, four in ten respondents (41%) said exchange rate volatility was their greatest concern, while nearly a third cited payment issues such as process inefficiency, limited payment visibility and bank fees.

There’s no doubt that doing business abroad can take smaller companies out of their comfort zone.  Exporting directly, for example, typically involves wading through varying levels of taxes, tariffs, banking practices and currencies.

But looming behind all of this is the simple fear of not getting paid.  How can you trust the company that you’re dealing with on the other side of the world?  Chasing payment can be time consuming and difficult.  Emails can simply be ignored and phone calls can be a challenge given language barriers and time differences.  If the worst came to the worst and payment was simply not forthcoming, the legal steps to pursue a claim would be protracted.

Exporting

Solutions – know your customer!

This is where knowing your customer really comes into play.  It’s really an extension of the same principles that businesses should be applying for doing business in the UK too.  Due diligence is essential.  A company credit report can show you key financial information, director information, trade payment data and any adverse credit history (such as a CCJ in the UK).

Companies such as Creditsafe provide access to millions of international company credit reports instantly available online.If information is not instantly available online, or a deeper search is needed; then a fresh investigation can be performed and a report returned to the customer usually within a matter of days.

This also applies to due diligence on company directors.  Understanding a director’s history should play a pivotal role in deciding whether to do business with a company.  Just as with UK director searches, international checks can also be performed.

Of course, credit status is not a static issue.  Monitoring on a continuous basis is also important in case a company’s credit position changes.  It could provide the warning sign you need to alert you to possible future payment difficulties if a customer or supplier is beginning to struggle.

Key considerations

There is no doubt that markets overseas offer potentially significant rewards.  But before your business sets about to try and crack the export market, as CFO it’s worth thinking about some key areas to maximise your chances of success:

Make sure you’re export ready – Do you have the necessary internal resources, processes, and staff to tackle international markets?

Understand the country conventions – What are the norms around payment terms, invoicing requirements and any other taxes or tariffs that may be involved?

Do the credit research– Obtain an international company credit report and study it carefully.  Hopefully it will present a positive picture, but be prepared to step away if it doesn’t look good.

Check out the directors– Do the due diligence on the key individual directors too.  What is their history and track record like?

Keep it under review– Keep monitoring.  Don’t assume that because it was OK the first time it will just stay that way permanently!

Rachel Mainwaring, Operations Director, Creditsafe

For UK businesses looking for growth, there are many factors pointing towards stepping up efforts to gain market share overseas.

A recent report by Alibaba Group’s research firm AliResearch shows that global cross-border commerce is expanding at a rapid rate.  Forecasts expect its value will hit the $1 trillion mark by 2020 – a figure that looks even more remarkable when considering that it stood at only $230 million in 2014.

At a time when the UK economy faces an uncertain outlook and with the prospect of Brexit potentially dragging down European demand, looking further afield may be an answer.  What’s more, the decline in the value of the pound has made British goods and services more attractive to foreign buyers.

Doing business on a global scale is now more accessible than ever in our digitally powered and interconnected world – but research has shown that this is not something UK businesses have been especially good at.  A study from the Centre for Economic and Business Research (CEBR) found that there could be as much as £141.3bn overseas sales available in new markets for SMEs – but Britain was amongst the five worst performing countries in Europe for SME exports.

Common challenges

Why is this?  There’s no doubt that doing business with overseas businesses can be a daunting prospect.  Not only finding customers, but the whole process of managing the relationship, exporting the goods or service, and then of course the issue of invoicing and payment.  It can seem fraught with difficulty and so, perhaps, some businesses simply shy away from it.

Research by the Economist Intelligence Unit found the biggest worries centred on payments.  Of the 500 companies surveyed worldwide, four in ten respondents (41%) said exchange rate volatility was their greatest concern, while nearly a third cited payment issues such as process inefficiency, limited payment visibility and bank fees.

There’s no doubt that doing business abroad can take smaller companies out of their comfort zone.  Exporting directly, for example, typically involves wading through varying levels of taxes, tariffs, banking practices and currencies.

But looming behind all of this is the simple fear of not getting paid.  How can you trust the company that you’re dealing with on the other side of the world?  Chasing payment can be time consuming and difficult.  Emails can simply be ignored and phone calls can be a challenge given language barriers and time differences.  If the worst came to the worst and payment was simply not forthcoming, the legal steps to pursue a claim would be protracted.

Exporting

Solutions – know your customer!

This is where knowing your customer really comes into play.  It’s really an extension of the same principles that businesses should be applying for doing business in the UK too.  Due diligence is essential.  A company credit report can show you key financial information, director information, trade payment data and any adverse credit history (such as a CCJ in the UK).

Companies such as Creditsafe provide access to millions of international company credit reports instantly available online.If information is not instantly available online, or a deeper search is needed; then a fresh investigation can be performed and a report returned to the customer usually within a matter of days.

This also applies to due diligence on company directors.  Understanding a director’s history should play a pivotal role in deciding whether to do business with a company.  Just as with UK director searches, international checks can also be performed.

Of course, credit status is not a static issue.  Monitoring on a continuous basis is also important in case a company’s credit position changes.  It could provide the warning sign you need to alert you to possible future payment difficulties if a customer or supplier is beginning to struggle.

Key considerations

There is no doubt that markets overseas offer potentially significant rewards.  But before your business sets about to try and crack the export market, as CFO it’s worth thinking about some key areas to maximise your chances of success:

Make sure you’re export ready – Do you have the necessary internal resources, processes, and staff to tackle international markets?

Understand the country conventions – What are the norms around payment terms, invoicing requirements and any other taxes or tariffs that may be involved?

Do the credit research– Obtain an international company credit report and study it carefully.  Hopefully it will present a positive picture, but be prepared to step away if it doesn’t look good.

Check out the directors– Do the due diligence on the key individual directors too.  What is their history and track record like?

Keep it under review– Keep monitoring.  Don’t assume that because it was OK the first time it will just stay that way permanently!