Export finance Exporting tends to be more demanding financially than selling in the UK. Consignments are usually larger, lead times are longer and the risks are more difficult to control. At the same time, you may need to take into account the problems of handling payment in foreign currencies.
Negotiating the terms of an export sale is a matter of balancing the risks and the costs to you and your customer.
1. First steps The terms of an export sale must satisfy both you and your customer You need to agree:
- The terms of delivery, covering the division of responsibility for transport costs and for the risk of loss or damage in transit. Standard international terms are set out in Incoterms 2010. Ask potential customers what terms they prefer and what causes them problems.
- The payment method. The customer’s creditworthiness will determine what payment method you are prepared to accept.
- The currency you will be paid in (see Foreign currencies). The price you negotiate needs to cover extra costs
- Transportation costs may include the cost of special packaging and labelling as well as the costs of any insurance you have to pay for.
- Documentation may involve special costs, beyond just issuing an invoice.
- You may have extra financing costs, depending on which financing options you use, and extra costs for dealing with foreign currencies.
- You need to agree who is responsible for taxes. It is common practice for each party to be responsible for their own country’s taxes, but you can agree something different. Assess the risks, and decide how much risk you are prepared to accept
- You may be prepared to use a less secure payment method if you know and trust your customer (or supplier).
- It can be difficult to recover goods or money through the courts if your counterpart fails to fulfil their obligations. You may want to assess their creditworthiness and reputation, and to research their country’s business environment.
2. Plan your approach to negotiation
- Assess your negotiating strength. Your customer is usually in a stronger position than you are.
- Identify any normal practice you should follow. Within the EU, most established businesses expect to deal on open account in much the same way as within the UK.
- Some countries have legal restrictions, such as foreign exchange controls, which you must comply with.
- If your financing costs are lower than your counterpart’s, it may make sense for you to take on more of the financing burden (and negotiate a price that reflects this).
- You might not want to invest time and money to be able to deal with foreign currencies or complex payment methods for a one-off export. • Being more flexible can increase your competitive edge and may allow you to negotiate better prices. Make sure you are clear on the documentation required
- You must provide all the documentation required by the purchaser and by the payment method you agree. For example, you might need to provide a certificate of origin as well as copies of the invoice and transport document.
- Export invoices generally need more detail than those for UK sales – such as a full description of the goods including item price, net weight (in kilos) and the country of origin and should be signed and dated.
- Goods for non-EU countries must be declared to HM Revenue & Customs (HMRC) before they are released for export, so export invoices and customs declarations must be prepared ahead of dispatch.
- If you use a freight forwarder, they can handle much of the paperwork. Make sure you have a clear agreement on who is responsible for what.