With the extremely tough economic conditions of recent years resulting in falling demand domestically, exporting is one way through which small and mid-market businesses can facilitate growth.But as the latest Office of National Statistics, ONS, figures reveal UK trade deficit in goods and services was £4.2bn in August, compared with £1.7bn in July, it is clear that these firms need a boost in confidence to kickstart exporting activity. In some ways, it is not surprising that many businesses are reluctant to explore foreign markets. The ongoing crisis in the eurozone, for example, hardly invites the confidence to trade. And while emerging markets can provide a lucrative alternative, inexperienced exporters may be put off by the perceived legal and cultural barriers of trading in regions such as Africa or the Middle East. But for those small and mid-market firms that have the confidence and the support networks in place, the overseas growth opportunities are there for the taking.
What about the barriers?Delayed payments, less stable banking systems, differences in business culture – these are all risks associated with international trading, especially in emerging markets. But with research and preparation it is possible to mitigate against them. In emerging markets, payment terms may already be extended far in excess of those you are used to and in many developing regions, the risk of non-payment can be far higher than in the UK or the EU. This makes it vital to ensure you have effective protection mechanisms in place. Instruments such as bonds and guarantees may be a familiar part of managing your working capital. Letters of credit, for example, could also help with this, but you should ensure they are in a simple, workable format. Invoice financing can also help you maintain control of your working capital in the gap between fulfilling orders and receiving payment. Having a professional support network around you that fully understands international trade can also be invaluable. UK Trade and Investment, UKTI, for example, provides profiles on a variety of countries, with sections of its website dedicated to emerging markets for both importers and exporters to utilise. It offers a wide range of support for those looking at new export markets.
Funding for exportersAnother important part of your support network while exporting should be a finance provider that understands the requirements of overseas trading. There is also a current misconception that banks and financial institutions are not lending to small and mid-market businesses. We would beg to differ and as part of lloyds banking group, we made £6.6bn of funding available to SMEs in the first half of the year, and have pledged to advance £13bn by the end of 2012. For exporters, we can offer a range of trade finance facilities which can add an extra layer of security to transactions with customers in emerging nations, as well as easing the potential burden on your cash flow of satisfying orders in additional markets. Finance packages can be secured both pre and post shipment, meaning you can benefit from additional working capital to fulfil an order, and then receive payment early when you have dispatched the goods.
Practical supportOne business we have helped in its bid to increase exports is Sheffield-based president engineering, PEGL. We supplied an export-focused confidential invoice discounting line, while another part of the bank refinanced the business’ existing capital structure and provided a supplier import loan. This has enabled PEGL’s group companies to trade overseas with confidence and expand through fulfilling its strong order book, ensuring that the business is not negatively impacted by the long lead times between receiving materials from suppliers and providing finished products to its clients. By doing their research, identifying international demand for their products and services and engaging a strong finance provider, small and mid-market businesses will discover there is a whole world out there for them to trade with. Ian Lomas is head of sales at Lloyds TSB Commercial Finance.
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