Finance for exports

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Finance for exports

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Why should you read this guide?

For some businesses, exporting is the natural next stage for growth. Having reached a point where the domestic market is covered you may want to expand to new overseas markets. To do this you need to make sure you are following the rules and are adequately protected to receive payment for the funds you are due. This guide will introduce you to your options for funding exports.

Background

Many businesses in the UK are well placed to provide goods and services to other countries in the world just as we import a lot of different goods from overseas. The world market is now getting easier to work in and more locally the European Union now has 27 members with a further three pending. Apart from having the right product and making sure you follow some regulations there is nothing stopping you trading with these countries. Ensuring that you are financially capable of carrying out this trade is an important consideration though. Unfortunately you cannot expect to meet many customers who will give you cash up front to manufacture and send over the goods so you need to look at other methods.

Paperwork

The first thing to realise when considering exporting is that your paperwork levels will dramatically increase. This is not something that you can afford to ignore or not treat seriously - if one piece of paperwork is wrong it may break the deal or stop you from getting paid. You will have contracts, licences, transport and the all important payment documents to control.

Payment documentation

There is a happy medium between open trading (which would be considered risky for both buyer and seller) and the payment in advance option. This is to look at the area of Documentary Credits.

Documentary Credits are basically an intervention by a bank to assist with the trading process. The bank acts on behalf of the buyer of the goods and provide the seller with documentation confirming payment. This payment will be made on delivery of conditions set out in the contract e.g. goods received by a certain date. The benefit to you as an exporter of goods is that providing you have met all of the conditions you can then approach the bank for the payment rather than the customer.

Open trading

You can of course treat your overseas customers as you do with domestic ones. You can provide them with the goods and invoice them in the normal way. If you have done your research on the customer then you should be able to know whether you can trust them to pay you or not. Another option is to ask them for a deposit or full amount up front, this will of course be less attractive to your customer. You also have the option of factoring. By using an international factoring company, either an independent or your existing bank, you can use them to manage the invoice payments. You would issue the goods and invoice as normal and the factoring company would chase the debt having given you an advance against it.

Summary

Exporting can be a difficult form of trading but it does not need to be. You need to maintain proper paperwork and check out your customers and trading rules of their country in advance of trading. If you do this properly then payment options are simply another tool required to trade and should not be seen as an obstacle.

Further information

Information about trading overseas can be taken from Department for Business enterprise and Regulatory Reform (BERR formerly DTI) on www.berr.gov.uk or by looking on the business link www.businesslink.gov.uk or business gateway www.bgateway.com websites. For specific payment details then speak to your bank for further guidance and options.