Product Risk
- Your product must comply with all the
relevant regulations and standards that apply to the countries you are
exporting to.
- You might choose to introduce changes
yourself – such as cheaper materials for different marketplaces. Remember
that product modifications will affect your production processes, and your
budget.
- Exporting may lead to changes in the
way you manufacture and supply your product. When transferring
manufacturing overseas or granting an overseas licence that includes
production, you’ll need to keep a close eye on maintaining standards.
Always ensure that your designer's specifications are strictly adhered to.
- If you are exporting to countries
with different languages, your product packaging, advertising, literature
and point-of-sale material will all need to be re-designed. You could also
need to review your marketing materials for cultural differences, even in
other English-speaking countries. For example, if your advertising relies
on a very British sense of humour, the American market may not always
respond to it in the same way.
Credit Risk
A key risk for you, as an exporter, is that a customer will fail to pay promptly (or at all). It is vital you protect yourself against this.
Here are some of the measures you can take:
- Insure yourself against non-payment - you can insure against non-payment of export invoices with a specialist provider, or by arranging for your bank to take over the risk. For example, discounting your export sales ledger.
- Try to negotiate payment up front - consider negotiating payment upfront if you have the slightest concern over your potential customers' ability to pay. If it’s a big project you are working on, ask for stage payments.
- Ask for a Letter of Credit from the customer's bank - this effectively means their bank guarantees the payment. Be aware, however, that over 50 per cent of letters of credit are turned down, when first presented to a UK bank, usually because of failures in the documentation.
- Consult the British Chambers Of Commerce - if you require further reassurance on a customer's financial security, they can help trace companies in the UK and worldwide. They can also conduct press searches on companies or individuals, for a small fee, and can provide credit ratings or in-depth financial accounts for a UK or international company.
- Ask your suppliers for extended terms - extended terms can help while you are developing demand from overseas and establishing a trading pattern.
- Familiarise yourself with international settlement terms - these vary greatly from country to country: 30-60 days is typical in Germany and Norway, 90-120 days in Greece and Turkey, and 120-150 days in Uzbekistan.
- Take advice about what is normal for the markets you move into - generally, Western Europe operates on an open account basis, whereas Eastern Europe tends to use letters of credit. As far as possible, protect yourself in any pre-agreed partnership contracts.
- Investigate the UK Export Finance Schemes - these were introduced in 2011 to provide additional support for exporters. You can find out more at UK Export Finance. If you are in any doubt, you should seek professional guidance to help you manage your credit. The British Chambers of Commerce can point you in the right direction.
Exchange rate risk
The profitability of your export orders can be affected by fluctuations in currency exchange rates.
There are a number of ways you can protect yourself against this:
- Match income received in a particular currency to your expenditure in that currency, to offset any adverse financial implications.
- Another rising trend among UK exporters is borrowing money in the currency of the country of export - this is particularly effective in the Eurozone (the 19 countries participating in the euro) which has low interest rates. Such borrowing is repaid on receipt of the foreign currency sale proceeds.
The British Chambers of Commerce can advise you as to where to get help with managing your exporting finances. For more information on how Lloyds Bank can support with foreign exchange and your interest rate risk visit our International Pages.
CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT. All enquiries for foreign currency accounts will be referred to a specialist manager who will provide more information about charges for these services upon request.
Operational Risks
Mastering international trade procedures will be key to maintaining a successful export operation. You may need to invest in both specialist training and computer software, to aid your management of international trading (and payment) processes. Exactly what you are exporting and where it is going will determine the kind of procedures you need to have in place, but these will normally include:
1. Export documentation
Chambers of Commerce offer advice and training courses on paperwork for the movement of goods. Certificates of origin are often required to meet customs and quota requirements in the importing country. The Chambers of Commerce are the designated authority for the issue of EU certificates of origin. The service is open to all businesses in the UK, at a reasonable cost, and there are beneficial rates for Chamber members.
2. Logistics
Organising the physical movement of your goods will play a key role in your export operations. First-time exporters can discuss their plans with their local Chambers, to ensure the mode of transport and packing is best suited to your product, and to check that you haven't missed anything. A forwarding agent can also give you help with the packing and shipping of your goods. Finally, although there is no legal obligation to do so, it is generally advisable to get your goods insured. Marine insurance is the general term used to describe cover against damage to goods and loss while in transit. Policies will also cover road, rail and air freight.
Our International Trade Portal can help you manage your shipment, understand trade customs and calculate the cost of exporting. It’s free for customers who sign-up and available for a 90 day trial if you’re not.
3. Licences
The export of certain types of goods and technology is administered by governments, primarily to control the transfer of arms. This includes many items designed for civil use but termed 'dual-use', because they could be used for military purposes. These include:
- machine tools
- electronic equipment
- computers
- telecommunication equipment
- related components and spare parts.