32 . Glasgow Business November/December 2012


”Getting paid can be a source of considerable anxiety and, unless handled properly, serious cashflow problems “


a bank or similar institution essentially takes the risk from the exporter and collects the debt itself. Of course, there is a premium


CONTINUED FROM PAGE 31 Making the trade…


Particularly for businesses exporting physical goods, geting paid can be a source of considerable anxiety and, unless handled properly, serious cashflow problems. Te choice essentially boils


down to thee basic options: the potentially risky approach of taking orders on open account, demanding pre-payment from the buyer (risky for the buyer), or using an export finance product


»


to de-risk both sides of the transaction. Tis last option will typically


take the form of a leter of credit; a document purchased from the exporter’s bank which guarantees that – so long as the exporter can produce the goods and supporting documents on time – they will be paid. Indeed, such arrangements are


considered so rock-solid that it is possible to raise credit in the UK against a credit note from a good foreign bank. By issuing a leter of credit,


atached to this, based on the perceived risk of non- payment.


…And getting paid


Ten there is the equally vexed (but too oſten overlooked) question of the currency in which transactions should take place. Again, there are a couple of


basic choices, each with its own pros and cons. First, businesses could choose to simply invoice in Sterling, which means any risk associated with movement in currency values between invoicing and payment falls squarely on the purchaser’s shoulders. Tis approach is common in the whisky industry, the protected status of which means it faces litle competition from other markets. However, in more open


markets, invoicing in Sterling can put UK suppliers at a real competitive disadvantage. For example, if a German manufacturer is looking for a specific part and can buy from either a Scotish or French company, it makes far more sense to choose the supplier which can invoice in Euros. While invoicing in the local


currency is most oſten the right course, it does open up some additional challenges and risks, as Samantha Bet, Associate Director of JC Rathbone Associates explains.


“First, there’s the risk that the


exchange rate moves against you,” she says. “Tere are products you


should consider to help manage that, typically involving some sort of forward hedging; essentially buying a currency at a known exchange rate for use at some point in the future. “Now, banks used to do that


without a huge fuss, but now they’re very tight on approving new lines of credit. Also, assuming you can get that credit line in place, it leaves you under an obligation to trade. “Te alternative – if you can’t


get bank credit or don’t want that obligation – is to hedge your exposure through ‘FX options’, which carry no obligation to trade, but do come at a premium.” When looking toward the


high-growth markets of Asia and South America, Bet cautions businesses to expect further complications. “Russia, India, China, Brazil…


Tese markets are even more difficult to manage, in that they don’t have fully convertible currencies, so you may well find it’s easier to invoice in US dollars. “If you really need the


advantages of using local currency, you’ll face a different set of challenges depending on exactly where you are, so it’s essential to get expert input,” says Bet. Whatever route you take, it is


vital to factor in all the expenses and charges into your calculations at an early stage.


WE CAN HELP


Glasgow Chamber of Commerce has its roots in international trade, having been established nearly 230 years ago by merchants responding to an American trade embargo during the War of Independence. Since then, it has played a key role in certifying and arranging export


documents for businesses across the west of Scotland. Today, the Chamber is responding to the evolving needs of its members


by rolling out a suite of export-focused services, from a dedicated advice line to specialised financial products as well as international trade training. For more information, visit www.glasgowchamberofcommerce.com


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