28/07/2015

By Rachel Mainwaring, UK Operations Director, Creditsafe UK


For many small businesses the first time they even think about selling their products or services outside the UK is when they receive an incoming enquiry from a potential customer in another country. Although it can be an exciting prospect this can raise a lot of questions:

- How do I ship my product overseas and what will it cost?
- How do I make sure I get paid?
- What payment terms should I set?
- What currency should I be billing my new client in?

Looking down the list, selling to customers in other countries could seem daunting – particularly if you’ve never done it before. However if you take care of the basics and adopt the same sensible approach that you would do at home then you’ll soon find it’s not as different as you might fear.

There are a number of things to think about before you start, but this simple check list should at least help you on your way.

1. Always check out potential international customers and suppliers using a credit report. This will help you make sure the company is who it says it is and that it is physically based where it claims to be. You can also find out if a company has reported its financial results in line with local regulations and uncover any information that is available about how promptly the company pays its bills. In short, it helps you understand the basic creditworthiness of a potential customer and should help you start think about appropriate payment terms.

2. Understand the group structure of potential trading partners . By checking the overall group structure and what other companies are under the corporate umbrella you can see how big the organisation is as a whole, where companies’ head offices are based and whether other parts of the business are solvent or in trouble.

3. Use all of the above information to construct sensible terms of engagement with prospective customers including line of credit, payment in advance and shorter payment terms where appropriate.

4. Understand local currency and tax regulations. Make sure you know what the currency exchange rate is before you set your prices and in which currency you will be invoicing clients. Consider payment methods and terms: can you accept credit card payments or will you offer bank transfer services or letters of credit? It’s important to recognise that VAT regulations differ between countries, and that you will not be charging VAT when selling outside the UK.

5. If you are planning to deliver physical products overseas from the UK, think about what terms you want to offer and ensure delivery terms are adequately covered in your international sales contracts. These terms will typically describe when the risk of loss transfers from a seller to a buyer and include free on board (FOB), where the seller is responsible for delivery to a specific location, cost insured freight (CIF), where the seller is responsible for shipping to a designated address and for insurance, and cost and freight (C&F) where the seller is responsible for shipping but not insurance. It’s important to check how much it will cost to ship goods to a customer before advertising a price for delivery.

6. Check out the background of individual company directors. An international credit report may well hold information on the directors, shareholders and secretaries of a company and how long they have held that position.

7. Protect your business. Even within the EU, debt recovery can be a complex, difficult and prolonged process, so including a jurisdiction clause in contracts ensures both parties agree to apply British law and that British courts have authority in the event of any dispute. A clear paper trail is also important to proving claims, especially where electronic evidence is not admissible.

8. Make sure you understand the language, culture and regulation of a country before you start pro-actively marketing your products and services in that region. Think about how you will label and market your products (or position your services) to appeal to your target market and to comply with local regulations.

In summary, access to accurate information is key. Companies taking the first steps to doing business overseas, or simply with organisations within a mixed group structure, will reduce their exposure to risk by being as well informed as possible about the customers and suppliers they are dealing with. Carrying out a credit check on every business before starting a relationship with them can significantly reduce the risk involved.