Making business sense of overseas trading


Doing business on a global scale is now more accessible than ever. International markets have been localised through the growing capabilities of e-commerce, mobility and technology, meaning that companies are no longer restricted to operate within the contours of their home country.

The global interlinked economy we see today is only likely to become further intertwined. The Office for Budget Responsibility expect UK exports to hit the £850billion mark by 2020 – a figure that looks even more exceptional when considering UK trade with EU and non-EU countries was just £224billion at the turn of the decade.

These figures show the borderless world we now see provides businesses with the opportunity to effectively grow their business, but to navigate it effectively there is a lot to consider. When working with international clients and companies, it’s not just about securing the biggest and best deals for your business, you also need to know how to get paid and who you’re doing business with.

Recent research by the Economist Intelligence Unit found the biggest pain point for companies around global trade was in relation to getting paid and the problems around late payments. Of the 500 companies worldwide surveyed, 32 per cent cited making payments as a top challenge, pointing to issues arising from currency fluctuation, process inefficiency, limited payment visibility and bank fees.

While clearly there are a vast number of factors that UK businesses should take into consideration before trading overseas, one particularly critical aspect is making sure that you get paid and set expectations realistically. We advise that all businesses carry out the same thorough checks they would make when trading at home with all of the potential companies they will be working with abroad.

Many businesses struggle with late payments and unfortunately this is a continuing trend within the UK. Firms routinely pay invoices late to assist with their own cash management without considering the potentially devastating knock-on effect this can have in the supply chain. Failure to seriously consider payment channels and the costs of transactions can see a business falter. When looking to expand globally, challenges such as these need to be overcome.

At Creditsafe, we recently looked at our trade payment data databases to analyse more than 283,000 invoices issued by UK companies to businesses in 18 of the G20 countries outside of the UK. Worryingly the results found that on average, British companies are being paid 19 days beyond the terms set (DBT). So overseas businesses from within the G20 are in effect paying UK companies more than three weeks late which could have serious repercussions for cashflow.

Saudi Arabia comes out on top for ‘worst’ country in the G20 for UK firms to do business with, based on Saudi Arabian businesses on average paying their invoices a shocking 92 days beyond terms to their UK counterparts.

The best G20 country to trade with based on these findings is Brazil, with Brazilian companies paying UK firms on average just one day late. The G20’s other South American representative also emerges credibly, with Argentinean businesses paying UK firms on average a more reasonable two days late. However, it’s not just a one-way-street and by way of comparison, UK businesses pay their fellow G20 partners on average 13 days beyond agreed terms.

With an increasing number of UK businesses considering trading with partners who operate in EU and non-EU countries, it’s important to minimise risk. This is why, credit checking is an important process for every business, particularly when the future of your business is at stake. Trading overseas can bring great rewards, but it pays to enter new markets with eyes wide open.

Whoever you choose to do business with, here are some crucial steps to take to help insulate your business against the associated issues of late payments and make trading overseas as simple as doing business at home.

Credit checking

Companies taking the first steps to doing 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.

There is a common misconception that international credit reports are not as affordable or robust as domestic ones, however, 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.

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 analyse the risk of doing business abroad. A company can use credit reports to check, before agreeing a commercial deal, that the company is solvent and not part of a failing parent group.

If you haven’t previously credit checked your customer, do it now. Firstly, check that they are who they say they are, then check their credit score to find out how good they are paying their suppliers. This information as well as their DBT will help you decide whether to trade with the business, or to help set payment terms and methods accordingly to ensure your business is not affected negatively by potential late payments.

Set future precautions in place

Getting hit by a late payment can be damaging for a company, especially if they aren’t expecting it. Setting due diligence in place, such as consistently monitoring a customer’s credit score throughout the duration of your business relationship, can help reduce your chances of being stung.

Embrace Technology

Technology can help businesses to build a 360-degree view of their debtors. Modern online business information systems like Creditsafe’s can allow companies to check all the financials, payment habits and payment trends of the businesses they deal with at the click of a button wherever they are in the world.

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