The UK is home to 4.5 million businesses, and it is predicted that only around 60% of them export, missing out on huge revenue opportunities. Last week, during Small Business Advice Week, we spoke with Trade Finance Global who compiled a list of tips for SMEs looking to export their goods and services.
1. Get the correct tariff code and classification
All goods that are imported or exported from the UK are your responsibility to classify correctly under Article 15 of the Union Customs Code Regulation (952/2013). This is important as it ensures that the correct VAT and customs duty are paid, as well as ensuring those goods are actually allowed into certain jurisdictions, and whether licenses are required (e.g. if you are importing livestock or hazardous materials, and whether this is inline with EU policies).
HMRC has put together a comprehensive list of trade tariffs, which can be accessed on their website, here.
2. Learn about Letters of Credit and Trade Finance
Even if you’re not a finance guru, it’s important to understand about the mechanisms of trade finance and Letters of Credit, the risks involved, and the structure of a trade. Simply put, trade finance is an umbrella term covering the import or export of goods and services overseas, and encompasses everything from Letters of Credit, stock finance facilities through to invoice finance and currency hedging.
Letters of Credit are the most commonly used financial instruments to secure funding against goods imported. A financial institution could promise payment to a beneficiary 30-120 days ahead of goods being ‘delivered’, thereby establishing ‘trust’ and a payment guarantee between a buyer and seller.
3. Do your due diligence
International business can be a gateway to new markets, additional revenue streams and huge opportunity, although with that comes the potential of risk, defaulted payments, and goods not arriving as expected.
In simple terms, conducting due diligence simply means doing your homework. Although due diligence can be time consuming and tedious, checking company accounts, looking at online trust reviews of a company and confirming their business address are all essential.
Negotiating with suppliers is a key skill which can make or break profitability. Execution however remains at the top of all of this; the ability to act quickly, stay on top of communication and develop a fantastic working relationship can help leverage a great deal.
Understanding the business, the underlying cost of producing goods, and ability to demonstrate your credibility in the market are all ways to get on good terms with suppliers.
On the sell side, the quality of your service or goods can help sell at higher margins, as well as having an established reputation in the market.
5. Understand currency risk and plan carefully
2016 has been a tumultuous year in terms of foreign exchange volatility, especially in pound sterling, dollar and euro markets. Many businesses who did not hedge or plan for extreme currency fluctuations were in for a surprise when the pound plummeted to a 31 year low against the US dollar shortly after the EU referendum, and suddenly the cost of importing goods became expensive, whilst the ability to sell (or export) goods from the UK was more competitive, causing a boom in exports from the UK.
When trading overseas, the time difference between agreeing a deal in another currency and receiving end payment could see an adverse swing in currency which could suddenly erode margins. By hedging risk, working with a currency broker or FX provider such as BFS, and agreeing possible FX options could help reliably protect a business from FX movements.
To find out how to fund your export plans, visit: https://www.bibbyfinancialservices.com/products/products-and-services/export-finance.