The major challenges and risks for importers & exporters
The import & export industry by its very nature faces certain challenges and risks. If not dealt with properly, these challenges can and do put companies out of business. The following are the main challenges and risks UK import & export companies face.
- Trouble with financing and loans
One of the most significant challenges facing international import/export companies today is in getting trade finance. The nature of these companies is to do constant and immediate business. They need to get stock on time, and when it gets stuck at customs, they end up with cash deficiencies. Unfortunately, banks don’t supply quick financing. The process takes far too long. Furthermore, it’s getting harder in general for small to medium enterprises (SMEs) to get bank loans. Lately, with economic conditions highly uncertain in the UK, banks are tightening their pockets.
- Currency volatility
Since import & export companies need to make and receive constant overseas payments, exchange rates are highly significant in their financial planning. Unfortunately, exchange rates are volatile, and even small fluctuations can make a big difference. When you’re dealing in millions, as big corporations are, a few cents one way or another amount to significant losses. When trading with regions that have more volatile currencies, there can be big changes on a day-to-day basis. In the aftermath of Brexit, the UK has become one of those regions, with the pound sterling on very uncertain footing for the foreseeable future. This means that you can import or export the same amount of units in consecutive months, but get paid significantly different prices for them.
When you’re relying on a certain income for the continuation of your business, these unexpected swings can cripple you. You might be left in the lurch, unable to pay suppliers or meet your other expenses.
- Execution of money transfers
But the challenges caused by foreign exchange don’t stop there. The execution itself of money transfers can be slow, costly, and can break down.
- You need to set up a collections system. This is especially relevant when it comes to import finance. If the recipient does not pay you on time, you could be left flailing. And while it would be easier to collect in the UK (but not always that easy), you need to now handle debt collection in a foreign country.
- Payment processing itself sets you up for a lot of trouble. You need to process payments in accordance with the laws of more than one country. You need to use efficient systems that are suited to overseas payments.
- Repatriation of capital is limited strictly by regulatory authorities in all countries. This is so capital is not drained from the country in a small space of time. So, when you wish to bring your capital back to the UK, you’ll face limits and some resistance.
- Paying suppliers sets up challenges. If they’re using a system that is costly or inefficient, you need to negotiate who pays the fees. Overseas payments for imports can get tricky, both financially and organisationally.
- Clearance procedures and taxes
Everyone dreads bureaucracy and taxes. But import/export companies face the biggest challenges. They’re dealing within the limitations of trade agreements and if procedures are not carefully handled, they can end up in hot water. Tax is a tricky subject, seeing as different tax laws apply to different locations. Ultimately, you end up with masses of documentation, along with associated costs.
- Changes of import duty, fuel prices, and other independent variables
One of the more difficult challenges to deal with is the impact independent variables have on prices. Countries often hike import duties. Fuel prices are often changing, increasing the costs of transport. Other factors affecting prices in countries with which you’re dealing can increase costs of transport and goods. These are factors you have no control over.
- Natural forces
Natural forces, such as climates and natural disasters can break down your system temporarily. Again, you have no control over these forces, and they can be hugely frustrating and damaging.