Doing business internationally can seem daunting for many small and medium sized businesses. For many, it feels like there are just too many things that can go wrong. However, in our rapidly globalising economy, many businesses can’t afford to ignore international markets and opportunities, whether those take the form of foreign business partners, customers, or employees.

calculating payments - Managing cashflow issues when doing business overseas

When money starts crossing borders, things can get complicated. Understanding and learning to manage those cash flow issues can make or break your business in the long run. Let’s take a closer look at some of the most important issues that you’ll need to address, and what tools are available to help you deal with them.

Heavy import costs

Many SMEs can’t afford to absorb the massive cost of importing bulk goods from overseas. Of those that can, importing still poses a significant financial risk. After all, it can take a relatively long time to generate a profit with those goods after they arrive. In the case of simple resale it doesn’t have to be an excessively long period, but businesses who need to import materials or components for processing face a much more serious obstacle.

For example, a medium sized furniture manufacturer may be interested in importing relatively large quantities of redwood lumber from the US. That lumber could easily take months to ship, process, market, and sell in the form of furniture. Even if they can technically afford it, tying those funds up for that entire length of time could make it impossible to follow up on other important opportunities.

The solution: import loans

Import loans, or stock loans, are meant to finance shipping costs, the price of the import goods, and sometimes also associated taxes and fees. Repayment deadlines vary depending on the lending institution, but they’re designed to be repaid with the revenue generated through the sale of those goods. Fifo Capital’s stock loans are designed for a 90 day period. Using an import loan like this can open up one-off purchasing opportunities, and help to smooth out the cash flow disruptions that making these large payments can cause.

Currency exchange losses

Foreign currency exchange markets fluctuate constantly, and if you’re not careful that can have a real effect on your business. Sending and receiving money internationally can be expensive for a variety of reasons. Many banks charge flat or percentage-based transfer fees that can add up quickly. Even worse, market volatility can result in unfavourable exchange rates at the particular moment at which you’re sending money, forcing you to pay more than you needed to for the same amount of foreign currency.

The solution: FX services

Foreign exchange (FX) services specialise in international transactions and currency exchange. They carefully time transactions to help you save money, and charge no, or very low, transfer fees. Unlike traditional banks, smaller amounts tend to cost small transfer fees, while larger amounts are often free to send. That’s because FX services earn their income by making these types of transactions very carefully, while regular banks will simply transfer the money and use the transfer fee to offset the risk of loss. Businesses of any size who frequently make international transactions stand to benefit significantly from using one of these services in place of their regular bank. We recommend www.hifx.co.nz. Tell them Fifo Capital sent you to take advantage of a special rate.

Collecting debts

One of the trickiest issues that SMEs have to deal with when working internationally is collecting debts. Learning how to collect a debt from someone in another country can seem daunting, and poses some significant risks and challenges. The most common issue is miscommunication due to cultural problems that interfere with your ability to successfully negotiate for your payment.

Most collections agencies don’t operate internationally, so you can’t generally rely on the same methods as you might at home. Besides that, all but very large debts can be difficult to legally pursue in another country if you do it personally, because the cost of litigation and travel might exceed the value of the suit.

The solution: international representation

Specific types of collections agencies do operate internationally, and will have legal representatives in the countries where your debtor lives that speak the language and understand the culture. Often, payment issues can be resolved by an experienced collector who knows the debtor’s culture well and understands how to effectively negotiate with them.

When miscommunication isn’t the root of the problem, they’ll be able to help you pursue payment in court much more affordably than if you attempted to tackle it on your own. Having a relationship with a service of this nature provides some much needed security for international business relationships that might otherwise present too much risk.

Being able to manage your business’ cash flow issues across borders is an important aspect of being competitive in a globalised 21st century marketplace. Branching out internationally doesn’t have to be intimidating, and doing so mindfully can be incredibly rewarding.

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