Finance and International Trade: An Overview

Trading on the international market will mean your business has to handle not only foreign currency payments, but also protect itself against fraud and the risks of late and none payment. Trading overseas does present a number of unique challenges to your business finance, but none of these should be a barrier to you trading successfully overseas.

Moving into international trade will mean your business could be risking large amounts of its capital. It is vitally important that you have excellent credit and cost controls in place to ensure your business always has good cashflow. Debt collection from overseas customers can be more complex than the inland customers you are used to selling to, but this shouldn’t prevent your business from exploring overseas markets as they can be a highly lucrative source of income.

Grants and Financial Support

Entering a new overseas market for the first time will require an investment in time and money. Grants are available for trade missions to visit potential customers and grants to visit overseas trade shows. Contact your local Enterprise Agency as they can offer you help and advice on applying for these grants.

Export Factoring

Getting paid for the goods you have sold to an overseas customer can be problematic and have a negative impact on your business’s cashflow. Your business may already use factoring services to obtain a percentage of outstanding invoices. You can use factoring with international trade as well.

The value of your international sales may have to be quite high to qualify for overseas factoring, but talk to your existing factoring service provider if you have one. Don’t forget that any factoring agency may insist you purchase bad debt insurance before they will take you on as a client. Look closely at this additional cost and the likely impact on your business’s finances.

Invoice Discounting

Like factoring, invoice discounting is a way that your business can get hold of money that is tied up in outstanding invoices. This system is usually applicable to businesses that trade on a credit basis and have a turnover of at least £500,000. The invoice discount company will advance a percentage of an outstanding invoice to your business. You pay a monthly fee, and interest on the amount they have advanced to you.

Exchange Rates

International trade will inevitably mean dealing with foreign currencies. You should try where possible to sell your goods priced in pounds sterling as you will then be able to rely on the costs and price you have calculated. Opening a foreign bank account is also a good idea so you have access to local funds and can offer payment options specific to the country your customers are based in.

It is also possible to protect your business against currency fluctuations with specific insurance. This is particularly important if your customer wants you to invoice them in their currency. The delay between you submitting your invoice and the debt being paid, could mean massive shifts in the exchange rate that could mean a significant reduction in the money your business receives.

International Insurance

Protecting your overseas business’s finances should start with insurance for the none payment of invoices. This insurance is usually referred to as export credit insurance. You can protect almost all of the outstanding value of your invoices against none payment. Contact the British Insurance Brokers’ Association for recommended insurances suppliers or call them on 0901 814 0015.

If your business will be selling capital equipment to international customers, the Export Credits Guarantee Department is the UK’s export credit agency. They can help your business protect the money you risk when selling these types of goods overseas. You can also gain expert help from the finance team at the UK Trade & Investment website or call them on 020 7215 8000.