Selling overseas and getting paid overseas - some helpful guidance for your business
04/09/2009
By Nick Horton, Partner and Head of Dispute Resolution. Featured in Kent Messenger.
With the recession slowing the economy, businesses who adapt and diversify could turn the downturn into a growth opportunity. Businesses should consider other market opportunities, particularly the exploitation of the potentially fruitful export sales markets in Europe and the US.
Although the European and US economies are forecast to shrink in 2009 and 2010, the pound remains competitive against the dollar and the euro and so offers significant opportunities for UK businesses. Whether seeking to price your exports more competitively and build market share in the US and Europe or keeping your euro and dollar prices steady to benefit from an increased profit margin, the opportunities in trading overseas are definitely there for those willing to take them.
Managing risk
It is important to manage risk so that you do actually benefit fully from the opportunities available from trading overseas. An obvious risk is short term cashflow problems as a result of changes in exchange rates. The best ways to deal with this are to be able to adapt supply chains and maintain currency accounts for the markets in which you are trading.
However there are less obvious legal risks, too. It is worth seeking advice from lawyers with knowledge of export markets. You need a contract that covers you for a number of eventualities including payment difficulties.
Trade on your terms
Ensure you have a contract signed by you and the business with which you are trading. The Terms of Business upon which you are trading will only help you if they are incorporated properly. Make your Terms of Business the last document to pass between you and your purchaser. Where this is not possible, review the purchaser's Terms of Business carefully. Can you make sure that the contract is governed by English law and is subject to the exclusive jurisdiction of the English Courts? If there is a dispute later relating to payment or defects, for example, then regardless of who is right and who is wrong, you will have a significant commercial advantage if the Court proceedings are to be handled here.
It cannot be overstated how important it is to ensure that your Terms of Business give you as much protection as possible. However, they must also be attractive to your customers. You may wish to consider credit insurance in order to enable you to offer more attractive Terms of Business.
Get paid!
Your business' lifeline is cashflow. Trading overseas can be great for business, but only if you get paid.
Put credit control procedures in place. Remember that the expectations are different in different countries for the length of time acceptable to settle a bill. You must understand the business culture of the country in which you are trading: Italians often allow their customers an 80 day credit period!
Finally, here are some useful tips for ensuring that you give your business the best chance of getting paid:
- Credit check your customer before you do business with them - is your customer solvent? Will they pay on time? See if your bank will contact the buyer's bank for a reference.
- Understand the political, financial, banking and foreign exchange conditions of the customer's country.
- Agree terms as to the exact details of the method and documents required to pay the bill: payment in advance, documentary credits, documentary collection or an open account.
- Consider credit insurance, which is perceived as a must by a lot of businesses going into the export market. It can allow you to recover up to 95% of an unpaid invoice.
- Ensure that you can understand your customer's language or have a plan in place for doing so. If you don't you will find chasing late payment difficult.
- Seek assistance from a reputable firm who deal with debt recovery so that you are prepared for when you encounter problems with late payment.