Managing cash flow is a critical issue for most SMEs, but it can seem that much more acute when it comes to exporting.
Figures suggest that late payments are hindering SMEs in the UK when they are exporting to other regions, with nearly 40% believing that late payments are a barrier to growth in overseas trade.
Different countries have different legal procedures, and different cultures surrounding trade. This can make chasing debt frustrating and time-consuming.
“While overseas trade opens new doors, it comes with certain risks. Any business wanting to export, needs to consider these risks, and how to manage them”
Why is Planning Critical?
The best way to mitigate risk is by having as much foreknowledge as possible before trading overseas. This is about gathering facts, so that the business wishing to export knows its market, and understands the culture in which it operates.
It is also important to keep up to date records, so that a business can make informed decisions about future activity based on what it knows about the current state of its finances.
“If your management accounts are out of date, you’re not basing your decisions on an accurate picture, and having your records current is an enormously useful step to stabilise your cash flow”
Paul also points out that cash reserves are crucial when beginning to export.
Additional Costs and Risks
“Exporting can involve several changes to your business, including additional costs,” explains Paul. “These involve anything from insurance to transportation, or having to set up a branch office overseas, to meet trading regulations there.”
“This is why planning for cash flow when exporting is crucial,” Paul continues. “Businesses must manage risk effectively if they are to take advantage of the opportunities that exporting offers.
“Trapped cash” can be an issue for exporters, where they are unable to access, or repatriate the money they have generated overseas,” suggests Paul
This can be the case for several reasons:
- Foreign exchange controls
- Onshore capital requirements
- Regulations within the overseas country concerned
- Taxation questions
However, as Paul stresses, the same problems with late payment and debtors that occur domestically, can also happen abroad.
“International customers may use distance to delay or defer payment. They may also rely on your lack of local knowledge to deter you from recovering your cash”
Paul emphasises the importance of seeking the right professional support and guidance in commercial debt recovery overseas.
“Cash flow is a critical issue for exporters, and having the right specialist support, with a sound local knowledge, will help in recovering what’s owed,” Paul concludes. It can make all the difference between the success, or failure, of an international enterprise.”
For more of Paul Daine’s thoughts on this issue please read his LinkedIn article.