Trading overseas can be challenging especially when finances are involved.
As an exporter you may need finance to:
- pay for resources to fulfil an order
- fill the gap between delivering a good or service and being paid for it
- tender for a large project
- market your product or service
- visit overseas markets
- research and development (R&D) to make your product suitable for export
There are many financial products available to raise money to export. The right financial product will depend on what it is for and the size and stage of your business. You can either borrow money or get someone to invest in your business (also known as raising equity).
There are Trade and export finance options which usually refers to finance and insurance products that reduce the risks that come with selling internationally, such as:
- guarantees or letters of credit to help you get paid
- working capital loans to help fulfil orders
- insurance against not getting paid (credit insurance)
There are also multiple ways in which you can get paid from Bank Transfers, Letters of Credit to Merchant services and Bank Guarantees, which each method having their own positive and negative aspects.
Understanding how Foreign Exchange works is also important. It is important to know the major currencies which is freely convertible in the buyer’s country, even if you are selling in GBP. Your client may insist on paying in a foreign currency rather than GBP and with Exchange rates fluctuating continuously throughout the day and potentially affected by multiple of conditions such as economic reports, natural disasters, and elections., it is important that you limit your exposure. Most foreign exchange providers will have products available that you can use to protect your money with the most common being a forward exchange contract. This is a process whereby you essentially fix an exchange rate now to be used at some future date.
When trading internationally, it is likely that you will be have involvement within an overseas countries tax jurisdiction and it is important that you seek the services from an accountancy firm that understands International Corporate Tax and/or International Personal Tax.
Some of the areas these accountants can help with include:
- Tax efficient ownership structures
- Repatriation of profits
- Withholding taxes and tax clearances
- Double taxation relief
- Controlled Foreign Companies planning
- Managing enquiries from local and UK tax authorities
- International payments & foreign exchange
- Overseas workers Tax support
- Worldwide VAT (VAT registrations, Cashflow Implications of VAT, VAT repayments)
- Acting as an Overseas subsidiaries
- Strategical advice
It is possible to use a UK based Accountancy as many have connection with overseas Accountancy or are multinational with offices worldwide.
Before you fulfil an order, think about what happens if a buyer does not pay.
- research the country to see what legal recourse you have
- consider a payment method that offers more security like a letter of credit
- consider getting insurance to cover the risk of non-payment (credit insurance)
Credit insurance explained
What is credit insurance
Trade credit insurance is an insurance policy and a risk management product offered by private insurance companies. Exporters can take advantage of an insurance policy to protect themselves from the non-payment, insolvency, or bankruptcy of their customers.
A policy can also include an element of political risk insurance which insures against the risk of non-payment by overseas buyers due to issues brought about by or as a result of foreign governments, such as political unrest, changes in the law, nationalisation, inflation and currency issues.
How credit insurance works
In order to arrive at a proposal for your business, a credit insurer will review your existing sales and customer base. Based on an evaluation of this, they will propose credit limits which they can insure. These are usually either client or country limits, and your business will be covered to the extent of these limits over a given time period.
Trade credit insurance usually covers an exporter’s total order book and not just individual one-off accounts. The insurance premium rate reflects the average credit risk of the exporter’s order book of customers and will usually be a percentage of the credit limits covered, typically around 1 – 2%.
Typically, the policy will pay out a percentage of the value of your outstanding invoices over a given term (e.g. 12 months). If you make a claim, the policy will only pay out a given percentage of the outstanding debt owed. This figure can vary significantly but will typically be in the range of 75 – 95%.
As a business, you will need to consider the cost of the insurance versus the risk of non-payment by clients.
Trade Credit can be obtained from UK Export Finance (www.gov.uk/government/organisations/uk-export-finance) or from most Insurance companies.
2019 is likely to be a year of significant change for business customers across the UK. It may involve considerable uncertainty for firms, their customers and their business models. For those who haven’t already done so, now is the time to consider the implications of the possible outcomes for your business.
UK Finance is partnering with business groups to ensure the industry continues to adapt to meet the changing needs of firms. Access to finance is only one of the issues businesses may find themselves working through but it is important to consider any funding requirements early on. Banks and finance providers retain the capacity and commitment to support viable businesses and there is a wide range of advice, guidance and finance options available to firms.
The finance industry is here to help, so, Let’s Talk Business.
Take time to think about how your customers and suppliers could be affected by any upcoming changes, so you are prepared for the potential impact of these.
Ask your bank or finance provider early on if you think you might need additional finance, or changes in your current facilities. There’s plenty of support available and it can be quicker and easier than you might expect. The earlier you engage with providers the better.
Look into alternative finance options. Most applications are successful, but if your first choice doesn’t work out there are many different providers out there.
Know where to go for more information to help your business. Whether you’re looking to export for the first time or wondering how to manage changes to your supply chain, the information on this site aims to provide what you need.
This guide is a starting point for businesses looking for assistance. UK government advice can be found here.
For more information and useful tools, please visit https://www.ukfinance.org.uk/policy-and-guidance/guidance/lets-talk-business
For many businesses, the first port of call when seeking business financing will be their bank. One reason for that is the guidance that banks will be able to give. Because of the knowledge they’re likely to have about you and your business, they can help to quickly identify the most appropriate sources of funding. Of course, banks themselves have a range of options available. These include
- Unsecured business loans: A straightforward way of borrowing money, with fixed repayments (including interest) over a set period of time. Loans are most suitable for medium to long-term plans.
- Secured business loans: As well as unsecured borrowing, you can also use a range of your company’s assets, including property, inventory or equipment, as security for a loan. This can be an effective way of raising cash for working capital or investment. The amount you could borrow will depend on the value of the asset. Secured loans will usually offer a lower rate of interest than unsecured borrowing, while unsecured loans allow you to borrow without placing assets at risk of repossession.
- Overdrafts: These are more suitable for day-to-day requirements rather than for fueling the growth ambitions of established companies. They can be useful in helping to provide financial support when your business needs it most.
- Business credit cards: These are most effective when used in a similar way to overdrafts and are best suited to day-to-day needs. They can provide a lifeline when waiting to harvest the fruits of your business investments.
- Invoice finance: Invoice finance gives you the power to unlock cash tied up in your outstanding invoices and can provide an ongoing solution that grows with your business. It’s ideal if you have long payment terms, or if your business is growing and you’re looking for money to help you seize new opportunities.
- Asset finance: This helps you to fund the purchase of an asset. It allows you to spread the cost through regular repayments and means you don’t have to use valuable working capital to pay a lump sum up front. Asset Finance can be a good way to preserve capital and generate an income from an asset while you’re paying for it.
The government could also help your business to secure necessary funding through a variety of measures, including
- Enterprise Finance Guarantee: The Enterprise Finance Guarantee (EFG) could help you to raise funding if you have insufficient security to satisfy a lender’s requirements. Backed by the government-owned British Business Bank, the EFG provides a guarantee for 75% of the outstanding facility balance (although it’s important to remember that you will still be liable for 100% of the loan). Eligible businesses can borrow between £25,001-£600,000 over a period of 3 months-10 years, or £600,000-£1.2m to be repaid over a 3 month-5 year period.
- Business grants: The government provides a range of grants for small businesses, which are administered by several different bodies. Most are linked to specific activities, such as research and development, and while they don’t have to be repaid you will have to meet strict qualification criteria. Find out more about the support that could be available for your business.
Offering a share of your company (or equity) for an investment by a third party could be an effective way to raise cash. In contrast to a business loan from a bank, you may not have to make any repayments on the money invested. However, so-called Angel Investors (wealthy individuals who back businesses with their own money) and Venture Capitalists can strike a hard bargain in terms of the share of your company they take in return for their investment.
In recent years, a number of alternative financing opportunities have been developed that could be suitable for your business. These include
- Crowdfunding: This is where businesses raise small amounts of money from lots of people, via specialist online platforms. In exchange for the cash, businesses can promise a range of things such as early access to products, discounts or equity stakes in the business. Crowdfunding can be used for purposes as diverse as funding a small project to getting a new business off the ground, but with many businesses fighting for attention it can be hard to successfully raise the money you might be looking for.
- Peer-to-peer lending: This combines aspects of traditional lending and crowdfunding together, with specialist online platforms allowing businesses to take out loans funded by many individual small investors. The criteria for borrowing in this way can be less strict than traditional banks, while you may also be able to borrow more and get your hands on the cash more quickly. But costs are not always lower than they would be for a traditional business loan from a bank.
Enterprise M3 – Local Enterprise Partnership – https://www.enterprisem3.org.uk/funding
Coast 2 Capital – Local Enterprise Partnership – https://www.coast2capital.org.uk/funding-and-grants/
The Export Insurance Policy insures an exporter against the risk of not being paid under an export contract or of not being able to recover the costs of performing that contract because of certain events which prevent its performance or lead to its termination.
Find out more about UK Export Finance’s Export Insurance Policy
UK Export Finance has approved a range of brokers in connection with UK Export Finance’s Export Insurance Policy. These brokers can help arrange insurance from organisations in the private sector in addition to UK Export Finance.
To find an approved broker, click here
Moneycorp – Offer for Surrey Chambers of Commerce Members
Take advantage of exclusive offers, bank-beating exchange rates and expert currency guidance with Chamber Foreign Exchange.
Add a free foreign exchange health check and a dedicated personal trader to help you manage foreign exchange risk, protect against currency fluctuations and make savings on every transaction.
Find out more by calling 0808 163 5138 to access your exclusive Chamber offers.
If you’re trading across the world or making regular international payments, you’ll know that currency fluctuations can have a big impact on your bottom line. Chamber Foreign Exchange, in partnership with Moneycorp the exchange experts, protects your business against adverse rate fluctuations and makes the most of any positive movements to protect and grow your profit and your business.
Why choose Chamber Foreign Exchange?
- Bank-beating exchange rates – typically as much as 4% better than the banks
- Free currency accounts – Chamber members can trade multiple currencies for no extra charge
- Low transfer fees – Chamber Foreign Exchange transfer fees fixed at £5, just for Chamber members, compared with £20 to £40 typically charged by the bank
- Expert market guidance – with Chamber Foreign Exchange you’ll have access to a dedicated Moneycorp professional currency dealer to guide you through the foreign exchange market
- Fast online money transfers 24/7 trade at convenient times with online accounts and live rate information
- Free foreign exchange health check – free assessment of your business’s foreign exchange requirements, to help you pin-point where you could improve your margins
Discover more about the range of benefits available to you as a Chamber member call 0808 163 5138 or visit http://www.moneycorp.com/chamberfx
Claim your free Foreign Exchange Health Check – exclusive to Chamber members!
In addition to free currency accounts, low transfer fees and competitive exchange rates, as a Chamber member you’re eligible for a free foreign exchange health check for your business.
Take us up on the offer to assess your foreign exchange requirements, and let us help you to pin-point where you can improve your margins.
Moneycorp, the exchange experts, have been saving individuals and businesses money on international payments and travel money since 1979.
Moneycorp offer bank-beating exchange rates on international money transfers with expert guidance over the phone and 24/7 online transfers.
Moneycorp are authorised and regulated by the Financial Conduct Authority for the provision of payment services.
Download the MoneyCorp Chamber Member offer 2020.
Click here to visit the Moneycorp news hub.
Trading internationally? Take the risk out of payments today.
Currency volatility can have a huge effect on a business and a small change in an exchange rate can have a significant impact on operating profits. If you are trading internationally speak to WUBS today to see how you can save time and money on international payments.
Western Union Business Solutions supports businesses globally through one of the largest payment networks in the world. Powerful online platforms and personal account managers help simplify cash flow management and protect profits from adverse currency fluctuations.
No matter the size of your business, register for a free no obligation account today to save time and money when making international payments and take advantage of the following benefits:
- Competitive exchange rates saving you money
- Fee free payments
- Fastest routing ensuring payments arrive quickly; the same or next day
- Work with a Fortune 500 company with a global footprint giving peace of mind
- Online bulk upload facilities for multiple payments saving time and money
- Personal guidance to help make educated decisions about how and when to trade currency
- Free no obligation currency health check
- Online access giving real-time visibility of payments as well as statements of activity
- Multiple currency accounts.
Contact Western Union Business Solutions today;
Tel: 0800 096 1225