Jan 2020 | Business credit checks | Credit Decisions | Credit risk

In this short guide, we look at some of the key considerations for any business looking to expand to trade internationally, and explain how the right due diligence strategy can help you minimise financial and credit risks at every stage of the export process. 

Introduction

If you’re one of the 236,000 UK businesses trading internationally then you’ll know the benefits of expanding your business overseas to drive growth. The volume of companies trading overseas is growing 6.6% year-on-year. In the SME sector, the number of companies exporting goods and services is growing even faster at around 10% year-on-year 1.

Whether you’re a large, multi-national organisation, or a small UK exporter, doing business internationally brings unique benefits and challenges. Let’s look at some of the key considerations and ways to protect your business when trading internationally.

What is international business and why do we need it?

Quite simply, international business is the exchange of goods and services between different countries.

International business is a great option if you’ve already successfully grown your business in the UK. Ideally, you’ll know you’re ready to expand abroad because you’ve dominated your local market and growth has flat lined. Alternatively, you may already be selling to some countries and want to expand further to additional countries.

Business today is global, and those participating in it need to be equipped to trade on an international stage. The digital revolution has propelled business into the online sphere and, while technology has developed significantly, businesses still need to follow steps to make sure they’re set up to survive and thrive in the global market.

 The benefits of international trade

Trading internationally brings a number of unique opportunities, from increased revenue and cashflow opportunities, to currency exchange benefits. Trading internationally can also help you to optimise your supply chain and sourcing strategies and, in some cases, increase access to export financing opportunities.

International business trends such as growth in emerging markets, liberalisation of cross-border movements, and digitisation of trade are further increasing commercial opportunities for UK companies. As ever more companies begin to trade internationally, UK businesses are also ramping up their contribution to developing economies, ultimately helping to promote inclusive economic growth and to eradicate poverty.
 
What are the key benefits of international trade?

  • Increased productivity – According to UK Government statistics, businesses that declare international trade in goods are up to 70% more productive than non-traders. Of all the UK companies that trade internationally, the most productive were found to export more products to more destinations and import from more destinations than less productive traders.
  • Business growth – Perhaps one of the more obvious advantages is that you are greatly expanding your pool of potential customers by making your product or service available internationally.
  • Spreading risk – We all know that saying about not putting all your eggs in one basket…the same is true for your business in one market. By trading in multiple countries, your business may thrive in some countries whilst there’s a dip in trade in other countries.
  • Currency exchange benefits – It’s possible to increase the margins of your business – by timing your international business smartly, it’s possible that you can exploit situations to your advantage where either the pound is weak or international currencies are going through fluctuations.
  • Export financing opportunities – In some cases it’s possible to take advantage of export financing opportunities. There are many different financing opportunities available, each designed to help businesses to trade internationally more easily.
What are the key benefits of international trade?

The top international business risks every business needs to consider

Trading internationally exposes your company to a number of unique risks and challenges. As well as dealing with complex logistics and goods handling requirements, you also need to protect your business against international credit risks, export risks, and risks associated with Brexit and potential tightening of import and export rules to and from the EU.

If things do go wrong, it is also far more complicated to chase bad debt across international boundaries, with different local laws in place to govern the processes involved. Additionally, international trading can be impacted by in-country economic risks, political instability, local trade agreements, local taxation requirements, currency risks, and a range of other factors.

Before you dive straight into exporting or trading internationally, just like when you started your business in the UK, you need to research and know as much about your market as possible. This means learning about their economy, market trends, consumer behaviour and any policies or legal formalities that could affect your business. Doing this in the early stages will reveal any barriers to entry as well as giving you the chance to work out if there are any solutions before you incur any difficulties.

Factors to be aware of when trading internationally

Expanding your business overseas

With emerging markets in Brazil, Russia, India and China joining established overseas markets, there has never been a better time to think about growing your business outside of the UK.
 
Find a local advisor

You need expert, local knowledge and maybe even the support of someone who’s been there. Thankfully, there are plenty of organisations dedicated to helping businesses do this very thing. They include:

  • Department for International Trade: the official Government body set-up to work with UK businesses expanding internationally.
  • The Institute of Directors: If you’re already a member of the IoD you may or may not be aware that they offer advisory services on trading abroad.
  • Business Councils: Some economic relationships between Britain and other countries are already very strong and joint initiatives have been established to encourage trade.
  • Professional Associations: Is your business supported by a professional association? Many are global and can connect you with local market contacts and advice relevant to your profession or industry.

5 key ways to protect your business when trading internationally

Read these 5 ways to protect your business when trading overseas:

1) Get the most accurate information about your overseas partners before you start trading

Successfully trading overseas requires a high level of trust with your international business partners. This means you need accurate information about their organisation and financial status before you proceed with any kind of business relationship or transaction.

This can be a challenge, especially as many databases of international businesses are updated only periodically – typically once a month or once a quarter. In such cases, you could be researching and acting on information that is out of date, significantly increasing the potential for poor business decisions.

The way to ensure that you’re making trading decisions based on accurate information is to look for sources of information – including credit reports – that include dynamically updated data when changes are reported to a company’s status. In this way, you can ensure that all the information you are using to inform credit decisions and other decisions is accurate and current, and that your financial risks are mitigated to the greatest extent possible.

With accurate information about your prospective partners overseas, you can:

  • Ensure that companies are legitimate and financially stable enough to do business with.
  • Safely extend credit terms to partners overseas where appropriate to increase your cash flow.
  • Minimise credit and financial risks in countries that are unstable, either politically or economically.
2) Speed up international deals with faster due diligence

Often, taking advantage of a business opportunity overseas requires fast, decisive action. This means that you need fast access to due diligence information to ensure that delays do not impact your business strategy, or your ability to agree contracts with overseas partners.

The good news is that it’s now possible to access company and credit information online for most of the UK’s common trading partner countries. This means that you can get instantly available and dynamically updated information about your potential trading partners overseas, and ensure that they are suitable partners before you do business with them.

Even where due diligence information is not available online, you should be able to access current, accurate information on your overseas trading partners in the form of researched reports.

To optimise your export strategy, ensure that you can:

  • Access due diligence information for companies in common trading countries online, with instantly available and dynamically updated data.
  • Get standardised researched reports on overseas partners globally within 1 to 3 days turnaround time.
3) Maximise efficiency with fit for purpose ‘Know Your Customer’ checks and credit reports

In all walks of business, due diligence requirements for international business relationships are defined by the level of risk involved. This is to say that high-value contracts or transactions that imply significant risk require an in-depth review of your trading partners and their status, while smaller transactions require only simple credit checks.

This means that you need ‘fit for purpose’ international credit reports, both in terms of the information provided and the cost of each report.

In-depth reports, for example, should include detailed information about a potential partner’s organisation, trading history, ownership, credit score and more – all at a price that is accessible. At the same time, ‘light-touch’ reports for simple ‘Know Your Customer’ (KYC) checks or onboarding should include simple company and credit information at the lowest possible cost.

To minimise export risks, you need:

  • In-depth reports that help you make good decisions relating to high-value relationships and transactions, and transactions in higher-risk countries.
  • Cost-effective, ‘light-touch’ reports that reduce the cost of simple KYC checks and onboarding, and ensure compliance with parameters for trade insurance.
4) Reduce errors and bad decisions with standardised KYC and credit reports

Credit worthiness is determined differently in different countries around the world, introducing an additional layer of complexity for companies doing business internationally. Additionally, point systems also vary, with the German credit reference agency Schufa using a percentage system for individual credit reports, and Canada using a points system – with 300 points being the lowest score and 900 the highest.

This complexity means that credit reports are often formatted differently for different countries, making it difficult to understand a company’s credit worthiness at a glance. This increases the risk of errors or bad credit decisions, especially if multiple team members are reviewing reports, or if teams are distributed across multiple locations.

The lack of standardisation between credit reports internationally can also make it extremely difficult to integrate reports into enterprise systems, or data visualisation systems. Where organisations need to integrate data into enterprise applications, the process can be slow, complex, and – above all – extremely costly.

Overcoming the challenges with standardisation

The way to overcome these challenges is to ensure that credit reports are standardised for all the countries you operate in. This allows you to find the information you need about your international trading partners extremely quickly and easily, helping you maximise productivity and reduce the risk of errors.

As an additional advantage, standardisation allows you to consume company and credit data faster, and integrate it seamlessly into your enterprise applications and workflows for processing, analytics, or visualisation.

With standardised company information and credit reports, you can:

  • Reduce the risk of errors and ensure that all team members can understand due diligence information fully to make the best decisions.
  • Increase productivity with the ability to understand KYC and credit information at a glance.
  • Streamline the process of integrating credit report data into enterprise systems to save development time and costs.
5) Streamline your due diligence processes with labour-saving technologies

Depending on the size and nature of your business, you may have special requirements for accessing, storing, and updating KYC, credit reports, and other due diligence information on your overseas partners. You may also need to share information on overseas partners between teams, for example, or to update credit reports regularly to minimise export risks.

Ensure that your due diligence strategy offers the right technology capabilities to support your decision-making process. This may include technology tools that:

  • Make it easy to order and view international reports, store them for trade insurance and portfolio-wide reporting purposes, and share them with different teams across your business.
  • Support seamless integration of KYC, credit report data, and other due diligence information into your own enterprise systems, including your intranet, CRM system, or data visualisation systems.
  • Allow you to update and enrich due diligence information, including credit risk scores and firmagraphic data, quickly and easily -in batches or for your entire portfolio of overseas partners.
  • Make it fast and simple to search for, analyse and revisit KYC and credit information on overseas partners at any time.

How to manage your international business

The best way to manage your business and to guard against the potential risks of trading internationally is to conduct the right due diligence before any contract is signed or transaction initiated. This doesn’t just mean checking that all details about a potential international trading partner – such as its location and tax ID – are correct. You also need confirmation that the company is credit-worthy and in a financially robust enough state to meet payment terms and other terms and conditions in your trading arrangement.

With the right due diligence strategy in place, it’s possible to mitigate export risks and increase cash flow by extending credit safely to overseas partners. You can also access all the KYC information you need quickly and cost-effectively to ensure that potential partners are legitimate business entities, and that they are financially stable enough to trade with.

Finally, but equally importantly, the right due diligence strategy provides all of the technology tools you need to access, view, analyse and store KYC and credit information on your trading partners overseas – making the entire process faster and more cost effective

How can Experian help you mitigate the risks of international business?

At Experian, we’re experts at helping you overcome the challenges and barriers of doing business internationally. Using our portfolio of international credit reporting services and solutions, you can gain a deeper understanding of your international partners and customers, and, critically, mitigate the risk of doing business with them.

How can Experian help you mitigate the risks of international business?
Worldwide coverage via the Experian Global Data Network (GDN)

With Experian’s GDN, you can access instantly available and dynamically updated reports on potential overseas partners in 9 of the UK’s top 10 trading countries, helping you safeguard your business and ensure you make the right decisions.

For countries where dynamically updated, online reports are not available, Experian can provide freshly investigated company reports. You can also search our ‘Rest of the World’ index file database of over 15 million businesses for detailed information about the company you’re looking for.

For more information about Experian and our international credit reporting capabilities and how they can help you make faster, better decisions at a lower overall cost to your business, please contact us, or click here for more information.

1 https://www.gov.uk/government/news/236000-uk-businesses-making-the-most-of-overseas-opportunities