According to the Federation of Small Businesses, about a fifth of UK small businesses now sells to customers overseas and there are many good reasons why.
Obviously, it enables your business to target far more customers and possibly become much more profitable, allowing you to grow faster and bigger than if you focused solely on UK customers. Relying purely on UK customers can be risky, because if there’s a downturn in your sector or the wider UK economy, it could spell the end for your business.
Selling internationally can also enhance your reputation, while products or innovations you develop to sell in other countries could boost your UK sales. You might also face much less competition overseas.
So far, so good, but, if you’re not careful, selling to customers overseas can seriously stretch your business finances. Costs can be higher and supply and getting paid can take longer. So, how do you ensure that your business cash flow and working capital remains healthy when selling to customers overseas?
Whether selling in the UK or overseas, controlling your costs is fundamental to healthy cash flow. Selling overseas can prove much more expensive. For a start, shipping costs will be higher and there might be warehousing costs, local taxes, customs duties or VAT to pay. Taking out insurance provides peace of mind, but it also adds cost. You might have to pay an overseas distributor or agent and there could be additional bank charges to deal with overseas payments.
You must negotiate firmly but fairly to ensure the best value for all such costs because savings can often be made. Explore all viable options and regard all prices as negotiable.
If you’re lucky, you’ll be able to cover any additional costs by charging more for things you sell to overseas customers. But that isn’t a given. You may have to settle for a lower margin, which will impact your cash flow, especially if you’re faced with significantly higher costs.
You need to optimise your prices, which means making them as high as possible without putting off potential customers. Research target overseas markets thoroughly, so you know how much customers will pay and set your process accordingly. Understand the profitability of sales by product and by customer across your markets. As part of setting prices, consider how quickly customers settle outstanding invoices to manage the additional financing costs.
It will take longer to get your goods to overseas markets, possibly significantly longer. They might take longer to sell or you might not get your money as quickly, for example, if you sell via a distributor. In the meantime, you may have to pay your suppliers. For those reasons, you'll need to make sure you seek as favourable credit terms as possible.
If you grant credit, customers in some overseas markets might expect longer terms.
What if your overseas customers didn’t pay as promptly as your UK customers? What about currency fluctuations? These can eat into your margins, so seek expert guidance. All of these factors and more can affect your trade/payment cycles and cash flow/working capital.
How will your current banking facilities be impacted by overseas sales? Do you have the right sources of credit to prevent serious cash flow issues caused by some of the issues detailed previously? What if a shipment was held up or customer payments were late? What if your costs rose or currency fluctuations worked against you? Well in advance, speak to your bank about your plans and find out what cash flow solutions they offer.
UK Export Finance is the UK government’s export credit agency. It seeks to “ensure that no viable UK export fails for lack of finance or insurance”. UK Export Finance seeks to help exporters to win contracts, fulfil them and get paid. Find out how UK Export Finance’s products and services could help your business. Its products could lessen your risk and keep your cash flow healthy.
Your financial management system should enable you to almost effortlessly keep track of money entering and leaving your business, whether from the UK or overseas. It should flag up sums owed as soon as they become due, so you can chase payment (which can be more complicated and time-consuming when a customer is overseas).
Working with cash flow forecasts can help you to spot problems long before they affect your business, so you can (hopefully) avoid them. Selling overseas should enable you to take your business to new heights. If well managed, it need not place excessive strain on your cash flow or working capital.
Lloyds Bank supported 100,000 businesses last year to start up and helps businesses of all sizes, from small businesses to large corporates and financial institutions to fulfil their growth ambitions. For help on exploring oversea trade opportunities, visit Lloyds Bank’s International Trade Portal at lloydsbanktrade.com
Register or Login to add this article to your reading list.