International Trade

What are the risks of exporting SMEs need to be considering?

7 min read

03 November 2014

Paul Croucher, ‎head of trade finance and insurance solutions at UK Export Finance shares his insight on what growing companies need to know about finance as they take advantage of the export market.

Exporting in many respects is an extension of the normal way of doing business. The additional challenges arise from unfamiliarity, different customs, practices, language and legal frameworks. Where greater distance is involved it may mean an extended time before payment is received.

Finance takes the strain if there is a problem with delivery, or a delay in payment. So the key consideration is to make sure requirements are clearly understood and met so that any grounds for a dispute are avoided.

Where there is an extended time from the period you have to pay for supplies and cash from the contract being received this needs to be planned for. Is there sufficient cash available within the business or do you need additional working capital to complete the order?

Finally, there is the risk of non-payment. This can be reduced by good groundwork using credit information, clear contractual terms, more secure terms of payments, or credit insurance. If there is any uncertainty on these points it is worth building a good network of advice, using bank trade specialists, brokers and trade associations. 

The first port of call if you need finance is probably your bank. In most cases banks will be supportive, but they may raise additional requirements if the facility is large in relation to the resources of the business or current security held. In some cases they may wish to restructure the borrowing, to move away from traditional overdrafts. For example, they may suggest using an invoice finance solution so that they can monitor repayment by buyers better. On occasion they will turn to UK Export Finance. This may be because we help make the proposal more acceptable (by taking a share of the risk) or because our involvement can help them offer the facility on more attractive terms.

As the UK’s export credit agency, our role is to supplement the financial support available to exporters from the commercial sector. Essentially, our role is to make exports happen that wouldn’t otherwise be possible and we estimate that around 2,000 – 3,000 smaller businesses and 500 medium-sized and large businesses in the UK could need specific support over the next three years.

A practical way in which we do this is illustrated by our Export Working Capital Scheme. This is a solution to help businesses access the working capital they need to fulfil and export contract. UKEF’s Export Finance provides a guarantee to a bank that enables it to increase its capacity to lend to a UK exporter. Most leading banks have entered an agreement to support UK Export Finance schemes. They will work with you to submit an application for support to UK Export Finance. If approved, it enables exporters to access finance both pre- and post- export and we can guarantee up to 80 per cent of the approved amount. Businesses can apply via a participating bank, get in touch with their local Export Finance Adviser, or call UK Export Finance on +44 (0)20 7271 8010.

What are the most important things to remember when getting insurance for exporting? 

A sale is of no value to a business unless it is paid for – preferably on time! There is always a risk that the customer may not pay, or payment is delayed for an unacceptable length of time. Where this happens it can have a significant impact on your business’s profitability – or worse for larger defaults.

Commercial insurers generally provide insurance against these risks, but there may be buyers or markets they will not cover. UK Export Finance can bridge that gap for businesses with an Export Insurance Policy. This works particularly well for markets where appetite in the market is reduced as a result of economic or political events. The Export Insurance Policy covers one-off contracts. It allows claims for export contracts where a customer fails to pay within six months, or where the buyer is prevented from repaying by political events. Cover can be for up to 95 per cent of the amount due under the export contract.

What are the ideal conditions for a business to start exporting? 

Many businesses get into exporting almost by accident when an unexpected order is received. However, the best way to develop a business is through planned growth, developing the capability to support each key stage of progress. There are many sources of support available via local Chambers of Commerce, Trade Associations, and a wide range of service providers with trade expertise (lawyers, accountants, freight forwarders). It is useful to develop this network of support alongside planned market entry. Equally, it’s important not to ignore staff development, and consider the qualifications offered via the Institute of Export to help the business’s move into export.

Within Government, UK Export Finance has a regional team of 24 export finance advisers, offering local access to specialist export information, including three advisers with specialist knowledge of exporting for medium-sized businesses. UK Trade & Investment also provides country guides, the UKTI e-Exporting programme, as well as a similar comprehensive network of UKTI trade advisers. There is a lot of help out there.

What potential political changes in the future threaten UK exports? 

We live in a world of uncertainty, but the overriding majority of trade takes place relatively smoothly under the protection of agreements, standards and legislation designed to facilitate this. Countries and Governments of all persuasions support this process. But there will be shocks and all involved in trade need to be alive to these, have put in place the necessary precautions (such as suitable insurance) and maintain close dialogue with the private and public agencies that support them through these events.

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