Heading off to unknown shores always entails certain risks and challenges. An export transaction, for example, is exposed to additional risks when compared to a domestic delivery. Companies that consider a few simple and important points when doing business abroad can reduce these risks. With the help of certain instruments, they can even create room for manoeuvre and offer the buyer attractive payment terms, thus allowing them to keep up with international competition.
The following rule of thumb applies, in particular to new exporters: you need to ask questions, instead of simply having a go. Numerous organisations are available to advise Swiss companies that want to export. And in addition to the S-GE, these include the Swiss export risk insurance SERV, numerous chambers of commerce, lawyers, banks and consulting companies.
Every export transaction includes a risk of non-payment. This may be due to political or economic reasons. Political risks include extraordinary government measures or foreign political events such as war. Economic risk refers to the inability and/or the unwillingness of a buyer, exporter or financial institution to pay.
Especially for smaller and medium-sized companies, this can have a very damaging effect. The key to a successful international business transaction is therefore securing payment by arranging down payments and so-called milestone payments, or by using payment security instruments such as letters of credit or cash against documents. The insurance products of SERV can also remedy the situation by covering the risk of default. The documentation risk – for example, in relation to the export contract – is not covered by SERV. The private financial and insurance market offers risk solutions in connection with exchange rate changes and the transport of goods. These instruments give exporters the security they need to accept risky foreign orders.
Liquidity – a difficult issue
Exporters often also need financing in order to accept new international orders. Very often, however, their credit limits with the bank have already been exhausted. That means they can only obtain new loans or guarantees if they put up more collateral. In extreme cases, this can curb the exporter’s liquidity to such an extent that it is unable to accept otherwise attractive, unproblematic orders due to the lack of funds for the production costs.
And this is another area where SERV can help by protecting the bank against a payment default by the exporter. Thanks to this security, the bank is able to offer an exporter higher credit or guarantee limits. This instrument helps SMEs above all to maintain their liquidity, so that they can accept new orders and expand. This also allows the exporter to be flexible in terms of payment, which in turn increases competitiveness. Clear liquidity planning is also indispensable. The exporter should take into account any possible delays, all export costs and currency changes.
Caution with the contract
If the transaction looks promising at the beginning of a business relationship, it is tempting to conclude a contract with a handshake. However, the expectations of the parties can be very different. If problems do appear during the transaction, it’s word against word, and no written proof of the facts is available. Clear definitions regarding supplied goods and services represent a good basis for a successful transaction. In addition to a clear scope of delivery, the scheduling situation, guarantees and liability limitations are also essential for a successful transaction. These are just some of the points that need to be considered when drafting contracts. Under no circumstances should the exporter let themselves be forced into signing a contract that they do not understand 100%.