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?
1. Minimise your costs
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.
2. Optimise your prices
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.
3. Understand the cash flow implications
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.