28-03-2023 15:51

4 tips on risk and liquidity before you start exporting and importing goods

Geopolitics, market structures and customer relationships all affect the risk you need to consider for your exports and imports. Here are 4 tips before you enter into agreements across borders.
Three people shaking hands in a warehouse

A clear strategy based on knowledge and common sense

For growth companies where their domestic market has become too small, the next logical step is to consider exports and imports. To seek out markets with more customers, move production abroad or import raw materials and semi-manufactured goods from abroad make good sense and can contribute to growth, but it’s not enough to have a business strategy in place. When you expand to other countries, you need to make sure you have a clearly defined risk strategy.

Richard Hayes, Head of Trade Solutions Denmark.

Tip number 1: Carefully consider the countries where you want to be present

The core of trading is to ensure delivery of the best possible goods at the right time as cheaply as possible – and to ensure full payment for delivery as quickly as possible. That’s why decisions have for a while focused on just-in-time supply chain management and on reducing the total costs. It works really well when you know the risks.

But with the world events we have seen over recent years, the risk picture has changed. Coronavirus lockdowns, nationalisation and international sanctions have shown how quickly market conditions can be changed by national regimes or by international political decisions.

“Geopolitics has been put on the risk agenda, and when you include the geopolitical perspective, the decision-making process now has more facets, and there are more risk parameters to consider. The just-in-time strategies are being replaced by just-in-case strategies,” says Richard Hayes, Head of Trade Solutions Denmark. Stockpiling and friendshoring where you choose to operate in countries which are allies or have the same values as your own country are two levers that are now being used.

In connection with exports and imports, there is good reason to be cautious and carefully consider where you want to operate. Perhaps you cannot predict a situation such as a pandemic, but you should always have considered whether the authorities in a given country may hamper or completely destroy business opportunities, for example in a crisis situation. If there is high uncertainty, you should team up with specialists to assess the risk so you can prepare your strategy and consider mitigating measures.

Geopolitics has been put on the risk agenda, and when you include the geopolitical perspective, the decision-making process now has more facets, and there are more risk parameters to consider.

Tip number 2: Use specialists for complex matters

It can be difficult to figure out the risk associated with exports and imports, especially if you are considering countries which in terms of regime and business culture are very different from what you are used to. However, having the right partners can make international trading less complex.

It’s a good idea to use your network and business partners to understand the nuances and practice in the markets you want to import from or export to. You should accept and use the expert knowledge available to you, for example via a financing partner in the area. A strong financing partner can help to structure solutions and mitigate geopolitical risks and payment risks. And if it’s done in the right way, you optimise your working capital at the same time.

Tip number 3: Growth markets – make sure you are an important relation

When your company moves into new markets, you should naturally always look into the conditions and potential risks. If the new market is a growth market, you need to be extra careful with your risk assessment and security measures.

Growth markets are often more susceptible to changes in interest rates and for example the US dollar. Consequently, a country may have difficulties repaying its government debt, and banks may therefore also get into serious trouble. So it is important to have well-established collaborations and relationships, should the situation in the country worsen.

“When you import goods from a growth market and have partners that are strategically important to your company, you must nurture and protect your relationship with your partners. You can do that by ensuring financing, helping your partner develop their business and by ensuring long-term cooperation,” says Richard Hayes.

Tip number 4: Choose liquidity solutions that reduce import and export risks

When you choose to do business across borders and need financing and solutions that strengthen your liquidity, go for solutions with built-in security.

At Nordea we offer products and services which can support your growth via exports and imports. Our specialists can set up the solution that fits your business and the situation you need to tackle, so your business gets liquidity and is protected in the best possible way. Often your working capital will also be optimised.

Together with Nordea Finance we offer factoring solutions which will generate liquidity for your expansion and reduce your risk related to customers abroad. With accounts receivable financing, you receive up to 80% of the invoice amount as soon as you have invoiced your customer, even though your customer has not paid yet. You will receive the remaining 20% when your customer has paid the invoice. We also make sure that the credit risk is insured; so in case your customer does not pay, you still get 90% of the invoice amount.

Trade Finance offers export and import documentary credits that ensure payment and delivery of goods, respectively, in relation to your role as supplier or customer. And both in connection with factoring solutions and Trade Finance, we can manage debt collection if necessary.

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