By Peter Brinsley, International Manager of ABN AMRO Commercial Finance
The Office for National Statistics’ preliminary figures released this April were worse than anticipated, putting the UK in the first double dip recession since the seventies. Experts continue to challenge this diagnosis but the general consensus is that overall growth for 2012 will be slower than the Office for Budget Responsibility’s projected 0.8 per cent.
Of course, there will be companies that thrive in this challenging environment, but many more will continue to find these trading conditions tough. As such, some are looking beyond our shores to emerging economies — India and China for example — who continue to power ahead with growth in the face of a global slowdown.
Despite the dismal economic outlook, Ernst and Young’s most recent ITEM club report reveals that the volume of goods exported from the UK is increasing, by 5.1 per cent in 2011 with a similar performance projected for 2012.
This ongoing demand from overseas economies, coupled with the pound’s diminishing status, has created opportunities for British exporters who are looking to grow their revenues and while many have already benefited from this trend, it’s time for others to take the plunge.
But it’s not just FTSE listed companies and huge corporates that can benefit from overseas sales. Companies of all sizes can exploit these opportunities and are beginning to look outside of the UK for the first time. Those that are already selling overseas on the other hand, are exploring markets even further afield.
The first hurdle for companies considering a move, is funding the initial exploration of a new market — the cost of international calls and meetings can add up and in this environment, finding bank finance can be difficult. To combat this, more and more businesses are seeking to unlock large cash reserves in their existing assets to fund these kinds of ventures. Manufacturers may look to borrow against their owned plant and machinery, for example, to finance the initial move.
Once installed in a new market, doing business can, of course, create a number of challenges. No doubt, first time exporters will find themselves contending with time zones, language barriers and lack of knowledge ‘on the ground’. Yet, often the greatest concern of all is raising finance and collecting money from export customers.
Differences in payment terms are often a shock to UK businesses more accustomed to terms of 30 days from the date of the invoice, or from the end of the month when the invoice was raised. In some European countries this period can often be three times as long.
These extended terms could have significant cashflow implications for UK companies while the gap between delivery and payment will also expose businesses to fluctuations in currency.
Chasing late or non-payers can also cause headaches. It’s not unheard of when chasing a bad debt, for your English speaking contact to become mysteriously unavailable, and if matters require legal action, UK firms will find themselves in an unfamiliar jurisdiction. So, for peace of mind, it’s always worth forming a relationship with a local law firm early on.
While these issues may seem intimidating, especially for first time exporters, they are not insurmountable. In the past, companies have turned to financing solutions such as letters of credit to guarantee payment. Factoring and invoice discounting have also emerged as popular tools to address the cashflow issues that surround exporting.
For small companies new to a particular market, partnering with a local factor can be a particularly effective approach as it puts the onus of debt collection on the factor whose local knowledge will smooth the process. By not getting bogged down in chasing payments, businesses can focus on other activities like sales and marketing.
For companies that are already established in a market and perhaps have a little more local confidence, invoice discounting provides the same cashflow advantages as factoring while leaving credit control in the businesses hands.
Both of these funding options can help alleviate the risks of currency fluctuation effecting profits as a company with either of these facilities in place can get finance within 24 hours of assigning invoices. This reduces the potential impact of any major move in the market.
With the outlook at home looking choppy at best, more and more businesses are looking to trade further afield. Exporting and operating abroad might feel like a huge step for a small company to make but the tools, and opportunities, are available for anyone determined enough to make a go of it.
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