Weighing up the export risks
Scottish exporters have had great success in the last 12 to 18 months as the low pound boosted competitiveness abroad. Exports grew by almost a fifth in 2017 to reach just over £28 billion, with 45 per cent of sales going to the EU, 20 per cent to Asia and 15 per cent to the US.
Despite the growth, just 6 per cent of the country’s businesses export – a figure the Government is keen to improve. Following the announcement of a new National Manufacturing Institute, five local export partnerships will be launched with the goal of boosting the number of businesses selling overseas. Each pilot scheme will help small and medium-sized firms with little or no previous experience to reach customers in new international markets.
However, exporting does not come without risk and it can be a steep learning curve for entrants. The need for caution is clear but we often see new exporters overlook a number of avoidable pitfalls which can scupper growth opportunities and, at worst, pose a serious financial risk to their business.
Companies often don’t take into account the variations in how business is done from country to country, particularly when it comes to payment terms and the differences in legal processes. Firms are likely to face longer and more segmented payments than they’re used to in the UK. With China, for example, businesses can expect new clients to take an average of 90 days to pay for goods or services, compared with 52 days in the UK. The same can be said for a number of European countries, including Turkey, Italy and Greece, and firms new to this length of payment may need to reassess their financial structures, particularly their cashflow and credit management.
Major differences in law also exist. Businesses need a good understanding of how these could affect their ability to successfully export products or services or recover monies as securities. It should never be assumed that legal processes will be the same as the UK. Large firms may have a legal counsel responsible for addressing these challenges but it would be a wise move for smaller firms without this resource to seek expert advice so they’re prepared for any situation that may arise.
In addition to this, finding out as much as possible about potential customers can help firms guard themselves against future problems. Building profiles of each business is a good start, and by collating information on country risk, sector risk and the firm’s financial health, they will have what they need to make the right decision about whether to sell. Ask around and get help and advice from government agencies, chambers of commerce, financial advisers and accountants, your bank or credit insurer to help you make an informed decision. Damon Clulow, business development, Scotland, at Euler Hermes, the trade credit insurance company