Challenges Every Import & Export Company Will Face
The import & export industry is one that is only growing. In a world that is increasingly connected, it is becoming easy to purchase products from almost anywhere in the world. Food and big technologies have always been important trade goods. But now anything is available, whether to big corporations or the average person sitting behind a screen. With import & export companies coming up with innovative ways to ship products across borders, customers don’t wait weeks for deliveries.
Nonetheless, import & export companies still face heavy financial challenges. Since so much trade is done locally and internationally, so much can go wrong. If trade finance is not managed properly, the import & export industry stands to lose big. And, due to the fact that we are dealing with multiple countries, there is a lot to consider.
There are some helpful statistics that show just how big UK trade is, where we’re exporting to, and which countries we are exporting from.UK Trade – An Overview
In May 2016 (the latest statistics at time of writing), UK exports reached a value of over £23 billion. The biggest individual recipient of UK exports was the United States, with over £3.7 billion. Asia and Oceania brought in £3.8 billion in UK exports. These figures are especially significant, as they show the extent of trade to countries much more distant than Europe.
Imports of £17.4 billion reached the UK shores. A value of £8 billion came from Asia and Oceania, and another £3 billion from the US. These huge figures, from different ends of the world, show just how globalised the world is. Massive trade is done between extremely different regions.
The UK is neither the biggest importer nor exporter. It is totally eclipsed by China and the US in those regards (much larger, more populous regions). Regardless, the amount of trade done in the UK is proportionally huge.
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.
Solutions to the most common challenges
We’ve spent a lot of time discussing the challenges of the import & export industry. They can be very daunting if you are a beginner. But the truth is that millions are making it work and profiting greatly.
So, if you’re struggling with the above challenges, here are some of the best solutions.
- Use alternative non-bank loan providers
Before discussing alternative loan providers, we must mention that this is never the ideal option. These channels should only be used in the short term, to compensate for cash flow deficiencies. You should already have a plan in place to repay the loan. The reason is that any options that accept borrowers with little fuss inevitably charge a lot more. They’re making up for the expenses they’ll incur from late payers, and you get the brunt.
If you are thinking of using a non-bank provider:Do you want to know more about your bridging loans which are available for importers/ exporters? View our rating of the top cash advance providers for UK and USA based businesses.BEST LOANS FOR IMPORT/ EXPORT
- Foreign exchange options for currency hedging
The challenge of currency fluctuations has been around for a very long time, even if it’s a bit more significant right now. Foreign exchange companies have been developing solutions for almost as long. Some of the options include:
- call/put options: these allow you to buy or sell currency at a specified price within a specified time.
- limit or stop orders: these allow you to set up orders to buy or sell your currency when the exchange rate reaches an upper or lower limit.
- forward contracts: these allow you to peg the exchange rate at a certain level for up to two years. Although this means you won’t benefit from positive fluctuations, the risk of loss is greater than what you’d likely gain.
You can find a guide to the best Forex companies and in depth information about the options they offer by clicking here.
- Use foreign exchange companies to execute your transfers
As a general rule, foreign exchange companies are likely to provide you with the best service in terms of transfer execution. FX brokerages:
- provide free advisory services, with many of them connecting you to a dedicated dealer who will help with your specific situation
- execute outbound money transfers with no hassle on your side.
- work out the best plan for repatriation of funds and execute it for you with your agreement.
- help set up bank accounts abroad. Since they have banking connections around the world, they can do this fairly quickly and at lower prices.
- help connect you with debt collectors abroad or set up alternative systems to ensure you get paid.
Banks also have special services for importers and exporters which can be read about here.
- Outsource the dirty work
There are many resources available online about invoicing and documentation, from different governmental departments as well as private companies. However, reading up on the information is not quite the same as following through with it. Documentation can be quite a nightmare. It’s always better left to someone else. Money transfer companies are again highly useful here, as they know how to use the right formats and provide the right information. They do it on a daily basis, quickly and without the stress and hard work you’d have to go through.
See a thorough breakdown of the risks associated with invoicing, and the benefits of using FX companies, here.
- Account for uncontrollable factors in advance
Unfortunately, there is little you can do about changing fuel prices and the like. But being prepared is often good enough. When you are pricing your services, and budgeting for the year, you can assess the likely risk of changing costs. Account for them in your budgets, and when they happen they won’t cripple you or leave you stranded.
- Know everything about the climate
To be fair, not even the weatherman can accurately predict the weather. But there are definitely certain risks you should expect. If the region you’re importing to or exporting from has extreme weather during a certain month, be safe and make plans for extra deliveries. Alternately, be upfront about the possibility you won’t be able to deliver during certain periods. It;s not an ideal solution, but if you and your clients are prepared for the worst, you can weather the storm.
CONCLUSIONS: BEST-PRACTICE FOR IMPORTERS & EXPORTERS
International trade is going nowhere, and thus there’ll always be a massive need for import & export companies. It’s a great industry to get into but, like all businesses, there are major challenges. Unlike most other businesses, there is exponentially more bureaucratic processes to deal with, and a lot of reliance on currency rates staying stable.
The most important thing to remember is that you’re far from the first to face these challenges. Millions of others have been there and succeeded, and their success has paved the way for yours. Loan providers cater specifically to the import & export industry. Foreign exchange companies provide options to deal with currency fluctuations. They can help with execution and documentation.
Ultimately, there will always be factors you cannot account for. There are circumstances you can do nothing about. Everything can change within a day. Think about the sudden failed coup in Turkey, for example. Closer to home, Brexit has created a lot of uncertainty, and for the foreseeable future, there are many very different possible consequences. But that’s life, and uncertainty permeates all businesses.
The import & export industry will always be necessary, and has existed since the early days of traveling merchants. It’s only growing, due to globalisation and easier means of transportation. Millions of individuals and businesses have found ways to face the challenges, and come through stronger. This should be a comfort for you, showing you that you’re not fighting a losing battle. Keep going at it, using the proper channels, and there’s opportunity for huge success.