26/05/2015

By Martin Campbell, MD, Ormsby Street


UK small businesses are increasingly turning to Europe and other territories as they seek new markets and customers for their products and services. It can be a lucrative and exciting new direction in which to take a small business, but it is also one that contains an element of risk – will international customers pay your invoices on time, or even at all?

Late payment of invoices is a major issue for small businesses all over the world, impacting on cash-flow and an organisation’s ability to achieve growth. When trading in the UK there are measures that small businesses can take to ensure that risk is minimised.

But what are the options for international credit checking, and how can small businesses protect themselves as well as enjoy the benefits of trading internationally?

Credit checking is of paramount importance

When trading abroad, credit checking is still hugely important. Any business owner will want to be assured that their customer is stable and isn’t about to go out of business, and also that they reliably pay on time. For anyone trading in a country that speaks a different language, this could make the kind of information that you’d generally come across in the press more difficult to come by. That’s where Google Translate can be invaluable. Search for information about that company’s financial health and use the built-in translator in Google’s chrome browser to look for any warning signals. The translation won’t be 100% accurate, but certainly close enough to get a good idea.

Credit reports are expensive…but worth it for big contracts

If all looks clear, the business owner should still check the company’s health and payment performance using a credit report. Credit reports about companies located in other countries are typically substantially more expensive than domestic reports or information, so it is advisable to limit using them to larger contracts where there is a greater financial risk.

Also be aware that you may or may not be updated to any changes in that company’s health (usually at an additional cost) over a period of time - this might be worthwhile if that high value contract runs over a substantial period rather than being a one-off purchase.

Factor in the overall financial stability of the country - the credit report will

Any credit report obtained will factor in the financial stability of the country in relation to that of the UK. Business owners should therefore be certain they understand the parts of the report that relate specifically to that country and what relates to a company specifically. It might be the case that a leasing company in Greece has a lower score than you might be comfortable with for a UK customer, but it is important to understand whether they’re a bad credit risk, or whether they’re a more stable company than most but marked down because of Greece’s general financial position.

FX risk and charges become a factor

If you’re trading across currency borders, another new factor to consider is foreign exchange (FX). As well as the costs involved in exchanging currencies, there are also the risks in what happens if currencies move against each other and the value of your goods or services (or your own costs) goes up or down. If the business owner can price in their home currency then the customer will be taking this risk, but they might be keener to trade with you if they can deal locally.

Some of the newer FX / Invoicing platforms can help this process along, by balancing out FX transactions in aggregate and offering very competitive rates - as well as guaranteed payment terms once funds are committed.

Use UKTI to help you find the right information

Exporting is big on the government’s agenda right now, as exports help our balance of trade which keeps government economists happy. That means that small business owners can get practical and financial help - usually in the form of guarantees - if you work in certain sectors and meet certain criteria. This might take some of the risk out of the transaction and can introduce the business owner to useful new contacts. UKTI is the best place to start looking.

All in all, the advice is simple – small business owners should trade just as carefully internationally as they would at home, remain aware of the additional costs and risks, and if trading with the US or another English speaking country, don’t assume that knowing the words of the language means that you know how businesses is done - cultures vary a lot, even when they share a common language.