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By David Greaves
Head of SME

For small and medium-sized (SME) businesses the idea of exporting is dismissed because of three main challenges; exporting challenges, overseas financial risk and foreign exchange rates.

In my experience as Head of SME for QBE Business Insurance I’ve found that the hasty decision is often made because of a low awareness of the elements involved and how businesses can protect themselves against these risks, but the effort is worth it. Exporting can enable you to access a large customer base and reap potential rewards.

Exporting challenges

Exporting presents several financial and legal challenges. However, these considerations can be managed and should not prevent a business from seeking overseas trade. Careful planning can reduce barriers to entry and provide understanding of exporting costs and obligations.

Once a business has a robust plan in place it should seek professional financial advice. Many SMEs start with their existing bank, who will provide guidance on your financial options from how to manage international currencies, cashflow and credit. Do not stop there – we’ve found that many SMEs give up if their bank is unable to help but there are a wide variety of financial support options out there.

For instance, UK Export Finance is a government agency that works alongside private partners to help SMEs with arranging trade credit insurance, financing working capital for exports, and sharing the risk with banks for guaranteed contract bonds. The agency also offers a wealth of guidance from a team of advisers who help guide companies to understand export financing.

Overseas financial risk

The second most common issue is oversea financial risk. Setting up for exporting can be costly, from travel, to supply and cashflow. Your first order will need to be created before payment is made, so having the cashflow to cover this outlay can impact your existing business. Credit agreements will help ease this pressure. Understanding and managing credit is important, as issues can impact a business even when you are an established exporter.

A good example is Wyedean Weaving. a uniforms and accessories supplier thatexports to 60 countries. Upon winning a contract to supply uniforms for the United Nations (UN), the company was asked to provide a performance guarantee from the bank. The bank in turn asked Wyedean Weaving for a cash deposit.

The impact of reduced cash would have taken money away from operations and could have meant turning away other customers, so Wyedean Weaving sought the aid of UK Export Finance. With their help providing a performance bond, Wyedean Weaving expects their revenue to increase by £1.2 million over the next three years.

Foreign exchange rates

Thirdly, fluctuations in currency is another main concern of exporting and rightly so. Profits can be at risk as the foreign exchange rate can substantially change between the time of invoice and when the payment is made. Getting to grips with foreign exchange is essential to manage your margins.

Many companies invoice in pounds to transfer the risk to the other party, but this has its limitations with buyers expecting you to lower prices considerably to compensate. By invoicing in local currency, you retain control over the sale price and can increase profit margins. However, to do effectively you need to fully understand financial environment and have the capabilities to manage this risk.

A financial adviser can assist and guide you through these processes, as well as ensure that you have a plan in place should currencies unexpectedly change, so your profits are protected.

Business protection

Professional advice should always be obtained from a lawyer prior to exporting. Depending on what market you intend to target, or your route of supply, can present a variety of legal risks. From contract negotiations with distributors or shipping agents, to protection of trademarks and your intellectual property, the legal elements require careful consideration.

A well-researched plan will help a lawyer efficiently assist you. Know the country or countries that you want to target and which route to market you are intending to take. Advice on trademarks, patents, copyrights, etc., can be found from the Intellectual Property Office

Managing the risk of exporting can mitigate any negative impacts on a business. Know what you are getting into and seek professional advice. Become export savvy to maximise profit margins and the potential of exporting. Essentially, ensure you protect business reputation and finances with suitable insurance - business, trade credit and cargo insurance can provide cover for losses as you go on your exporting adventures.

QBE has created a guide entitled ‘Enabling Exporting’ to help business to identify and manage export-related business risk, as well as provide insight to the steps required to start exporting.

This blog first appeared in Business Matters

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