The decision on whether to trade overseas is a big step for any Small to Medium Size Enterprise (SME), which warrants careful planning, as mistakes are likely to be very costly and may endanger the future prospects of the business.
Here are some easy tips to follow:
- Contracts and details of transaction
The first consideration after finding a potential client is to enter into a formal written agreement, setting the terms and conditions defining the relationship. The contract will define the responsibilities of the seller and the buyer for the delivery of the goods under sales contract.
- Credit terms and financing
In order to make the offering attractive, you will probably need to agree on terms of payment and whether or not, you as the exporter, will agree to offer your buyer the option to pay you at a later day – or in other words, offer a credit facility to your client.
You may finance the deal from own funds, or secure an overdraft facility from a bank or discount the invoice with a financing firm such as Eurivex Trade Finance Limited (http://www.eurivexfinance.com/) which provides financing through credit insurance and without asking for personal guarantees or pledging assets as collateral.
- Currency costs
When you are selling to a eurozone member country, there are no currency issues as the transaction is done in euros, but in case you are selling to other countries, then the foreign currency transaction costs and exchange rates become an important issue to consider.
Traditional bank transfer for foreign currency transactions can be expensive and banks may not be in a position to offer competitive hedging options, which is why it is best to ask for the transaction be denominated in euros. Alternatively, you need to follow currency markets and where possible seek professional help in managing your foreign exchange exposure.
- Transporting goods
The transportation of goods overseas is likely to be a critical issue for consideration since you, as the exporter, need to decide the best and most competitive method to transport the goods to the buyers’ location.
Air freight is typically used when transporting perishable or small high value items. Sea freight is often used for shipment of bulky goods and also for transshipment via rail or road as well as to far away destinations.
- Pricing policy
Your pricing policy will need to be flexible and determined based on local as well as global market conditions. While on the one hand, you need to make sure you are competitive in overseas markets where you are selling, but at the same time, you need to take into consideration local costs as well as changes in raw material costs that you use to produce the goods.
You cannot take for granted that you will make a profit on a quotation that you gave months ago, which is why your pricing offers need to have an expiry date of maximum 30 days to protect you against cost fluctuations.
- Market research
All exporters need to choose the right market to export and carry out due diligence, including market research and personal visits for better acquaintance of the markets where you are selling or wish to sell.
For example, you might think exporting to China would be great for your business, but without fully understanding the Chinese market, local tastes and competitive products, it might turn out to be an uphill struggle.
SMEs with limited budgets may be better off following in the footsteps of larger and better capitalized companies that have managed to penetrate the target country. For example, a Cypriot SME halloumi exporter is better off targeting the UK market where halloumi is extremely popular and where a market has already been established rather than contemplate developing a new market.
- Documentation, due diligence
You need to know with whom you are dealing, which is why it is so imperative that you conduct a full and complete due diligence on your potential buyers.
A thorough check of the buyer company web site is also warranted and in case you wish to provide a credit facility to the buyer, then stricter due diligence will be needed. Don’t forget that the same info will also be needed to be provided to your bank when sending or receiving money, so it never hurts to have the documents in place from the very beginning.
- Have your KYC ready
The same way that you need information on your buyers, they also need information and due diligence on your company. For this reason it is very important to establish a proper web site in addition to providing your company documents in English, and make sure you are ready to provide your VAT, Chamber of Commerce registration and proof of address.