With an increasing number of UK businesses considering trading overseas, it’s important to protect your business by minimising the exposure to risk when dealing with partners who operate in Europe, the US, and the rest of the world.
Why are businesses trading abroad?
- Potential for cheaper stock.
- USPs may be more sought after in another country.
- Different trade laws in other countries.
- You feel like you’re dominating the country you trade in already and you’re ready to expand.
The growth in global commerce and the UK’s export business has been driven by several factors including the uncertainty of the UK and EU economies, especially with Brexit looming on the horizon. The UK’s public sector cuts give an additional impetus for British companies to target emerging economies or to enter the more traditional markets in Europe or the US. Whatever reason you feel that it’s time to look into overseas businesses, it’s good to know what to look out for.
What do you need to think about before trading abroad?
If your stock is cheaper, it may also be lower quality.
Lower quality stock can result in returns and this can cost a business a fortune. Weigh up a balance between cheap suppliers and keeping your customers happy. Also, be careful of the currency conversion.
Is the place you want to trade in a country and culture you know enough about?
Each country is a different target market and what works for you in the UK may not translate well abroad. Make sure you do your research into cultures and beliefs, especially if you are going to be doing a lot of marketing. The last thing you want to do is offend your target audience.
Are competitors already operating here?
If you have competitors already operating in this market, it could be a positive sign that there is already a demand for your service or product in the market place. You could take this opportunity to take a look at what's working for your competitors and what isn't, and decide how you will differentiate yourself from them to become a market leader in what you offer.
Working abroad often means travelling abroad.
This is everything from market research and meeting with partners to ongoing trips to monitor how business is doing. Sure, a lot of this can be done virtually, but to build strong, personal relationships and overcome working in different time zones, you often have to get on the front line yourself. Consider the added travel costs and time you will need to dedicate to this.
Will there be language barriers?
Will you need to hire a translator to conduct business day to day? Or will you need help with business documents if they are in a foriegn language? This is another added cost you may not have considered. You may even have to hire bilingual staff if they are dealing with your customers as well as communicating with you.
Is you legal team prepared to deal with international law to ensure you are compliant?
Laws can differ drastically across the globe, you will need to make sure your contracts are all up to scratch which may involve hiring new legal help. You need to think about not only business laws but also laws involving your employees and their rights.
What are the safest countries to trade with?
Forbes has previously put together a list of the top countries to do business with, the top ten are:
- United Kingdom
- Hong Kong
- New Zealand
Although there are countries that are seen as more reliable within business, there are always risks when trading overseas.
There are some slight variations in the way organisations conduct business day-to-day, with the UK’s economic and commercial market being relatively standardised. However, look outside the UK and businesses can expect to deal with a range of different regulations and accounting standards, as well as language barriers.
A business looking to trade internationally should take into account three main categories of risk:
- Commercial: non-payment, insolvency, contract disputes, overdue payment, intellectual property rights (IPR), brand and reputation.
- Political: Government change, war, riots, terrorism, border disputes, changes in laws.
- Country: exchange rate, high inflation, lack of hard currency.
This means that credit checking both customers and suppliers is absolutely vital in order to check the company’s existence and that the details they provided are accurate. You can see how promptly the company pays its bills and how their cash flow is doing. It is also crucial to check the reported financial results are in line with the local regulation in your due diligence checks.
Using this information, companies can construct sensible terms of engagement with prospective customers including a line of credit, payment in advance and shorter payment terms.
Protecting your business
Trading internationally or not, the business risks remain, if not increase when doing B2B business.
You should always carry out due diligence to mitigate risk as much as you can when it comes to dealing with other companies to protect your own business.
Using company credit reports
The good news is that credit information providers have expanded the scope of cost-effective reports so that UK businesses trading abroad have information on companies from across the world.
Both local and international credit reports cross-reference and present company information in a common format, which make the lives of Credit Managers and Controllers much easier, as they can easily analyse the risk of doing business abroad. A company can use credit reports to check that the company is solvent and not part of a failing parent group before agreeing on a commercial deal.
Creditsafe Company Credit Reports also allow you to monitor your business relationships internationally, you will get alerted to any changes in their credit score. This way you have a constant reference as to whether these companies are safe to trade with.
Collecting Debt from Abroad
Although you take every precaution, you may find it hard collecting a debt from a company you have been trading with. Even within the UK, debt recovery can be a complex, difficult and prolonged process, so including a jurisdiction clause in contracts ensures both parties agree to apply British law and that British courts have authority in the event of any dispute when trading overseas. A clear paper trail is also important to proving claims, especially where electronic evidence is not admissible.
There are some processes to be aware of that may help businesses reclaim the money, such as the European Order for Payment Procedure (EOPP), the European Small Claims Procedure (ESCP) and the European Enforcement Order (EEO). These processes are not failsafe so it remains common sense to carry out stringent credit checks in the first place before signing up to any commercial deals.
If you need advice on collecting a debt, in the UK or internationally, Creditsafe’s debt collection service can help you get the money you are owed. Learn more about the debt collection service here.
Information is key
Companies taking the first steps to do business overseas, or simply with organisations within a mixed group structure, will reduce their exposure to risk by being as well informed as possible about the customers and suppliers they are dealing with. Carrying out a credit check on every business before starting a relationship with them can significantly reduce the risk involved.
If you’re thinking of trading abroad, why not look at how Creditsafe International Company Reports can help?