Our attention is often drawn to the fact that the world has become smaller as a result of globalization; trading overseas has been hugely facilitated by the technological improvements made in the field of communications. The range of new markets available to small and medium-sized companies is wider than ever before. As a matter of fact, they lie at the basis of the success of the so-called Mittelstand companies, which seek the funding they need in order to develop in new markets.
Currency fluctuations, communication difficulties and legal entanglements are all common risks when it comes to international trading. Also, relationships with business partners can easily fail and cause you to lose significant amounts of money. You must be very cautious when it comes to your overseas transactions in order to remain at the top. Here are a few aspects to help you out.
Unfortunately, many of the overseas transactions will not be completed according to UK law, so you should always make sure you keep your risks at a minimum. There are several ways to set up payment. You can do it in advance, in which case you need to submit a letter of credit, or at the time of delivery using a so-called bill of exchange. Also, you can set it up by invoicing. You should always consider both the risks and the customer’s needs and expectations when selecting a payment setup method in order to make the best choice. The length of payments terms can also be a problem with international trading, especially in the case of growing businesses, for it results in a limited availability of the working capital. Therefore, if running a growing business, make sure you keep a constant eye on your cash flow. You can turn to banks or alternative invoice providers for assistance with trade finance.
Currency fluctuations will determine the purchases and sales you can afford to make when closing agreements with your international suppliers or distributors and will also affect your making and receiving of payments. So does the financial crisis associated with the Eurozone. You might want to plan your currency transactions in advance. Contact the bank or your currency provider and book or buy your currency while the rates are favourable. You can also contact FX providers for assistance with forward contracts. These contracts protect your business from the potential damage of currency fluctuations by maintaining the exchange rate valid at the signing date of the contract over an established period of time. Thus, you gain better control of your cash flow by limiting the future costs and as well as the risks.
Insurance against non-payment
The purpose of insurance against non-payment is to limit the consequences of any payment delays or losses that might result from collaborations with certain international customers. Do not forget to include the cost of insurance in your pricing calculations for it can cause an increase in the buyer’s costs. Then, you can choose between a commercially available insurance plan and one that is supported by the government.