Beating Brexit woes with trade finance.

Business, Finance, financial services, Guest Blog | Tue 16 Jul | Author – Business & Finance

Trade finance can help SMEs adapt to a changed import market, writes Mark O’Rourke.

It’s no secret that Ireland and Irish businesses stand to lose considerably no matter the Brexit policy pursued following the selection of the next UK prime minister. However, the extent to which this disruption will disproportionately affect the SME sector, and particularly wholesalers and retailers reliant on imported goods, is worth bearing in mind. 

Ireland has close to 3,000 wholesale and retail businesses exporting goods to the UK each year, and 87% of exporters – along with 93% of importers – have fewer than 50 employees. As SMEs typically have tighter margins, volatility in the currency exchange rate has a major bearing on these businesses. This year alone, the Sterling-to-Euro exchange rate has gone from highs of €1.18 to lows of €1.11 in the space of a few weeks. Of course, fluctuation and volatility are facts of life no matter the currency, but the twists and turns of the UK’s Brexit negotiations with the EU have made it a particularly bumpy journey for businesses importing from or exporting to the UK. 

Indeed, a recent report found that 67% of SMEs have been adversely affected by currency volatility in the past year. In addition, both importers and exporters identified managing these fluctuations as one of the top three challenges facing their businesses.

On top of the financial complexities, buying goods from overseas also means finding suitable suppliers and ensuring you can sell the goods at a profit, while any delays when buying, taking delivery and selling goods will have a negative impact on a business. SMEs often do not have sufficient in-house resources to deal with all aspects of what is a complicated procedure. And, if funds are not readily available at the point of purchase or even when placing orders, a business’s ability to meet its customers’ expectations, or take on lucrative new contracts, can be weakened. 

Cash flow concerns

One avenue open to businesses looking to ease any concerns around cashflow when importing and exporting is to avail of trade finance products. These provide access to all or part of the cash needed upfront, allowing businesses to build trust with new suppliers without leaving themselves exposed to the hazards of international trade. Typically, the financial provider delivering the product will also cover any duty, VAT and freight costs. 

Aside from quick access to funding, our own trade finance product has the benefit of paying suppliers on the same day that goods are shipped, and in the currency of choice, helping to cement those all-important business relationships. A dedicated team of trade and currency specialists is also available to help SMEs deal with any unexpected issues that may arise. With the greater flexibility that trade finance offers, it can also be ideally suited to seasonal businesses, or those that receive large, one-off orders that must be quickly filled and paid for. While SMEs are often unaware of the range of financial supports available to them, trade finance can therefore offer much-needed breathing room for wholesalers and retailers. 

Import issues

Of course, importing goods for resale also brings with it a number of additional risks, and these can vary depending on which country is being dealt with. Businesses should be cautious when committing to long-term sales or prices with overseas suppliers, where currency fluctuations may adversely affect costs and margins. Transport costs can also quickly add up, and the responsibilities of each party for moving goods should be clearly set out in a contract. 

There’s also a number of practical steps that can ensure the process of buying goods overseas goes smoothly. Get to know potential suppliers by visiting trade shows to demonstrate commitment and legitimacy. Similar to doing business in Ireland, it is important to establish how long a supplier has been operating, that they have the relevant rights and permissions to sell and distribute, and their financial background. Consulting the International Chamber of Commerce’s International Commercial Terms and abiding by these can help prevent any misunderstandings and minimise costly trade disputes and litigation. 

Ultimately, importing goods from overseas involves all the same issues as purchasing from suppliers in Ireland. For those importing from the UK, it’s true that Brexit may make doing so more challenging and involve a higher degree of financial risk. But by identifying the right supplier, and putting in place suitable measures to protect cashflow, Ireland’s SMEs can continue to thrive and grow their international footprint. Trade finance products, in particular, can prove invaluable in offsetting the damaging effects of currency fluctuation and providing peace of mind to Irish SMEs. 

About the author: 

Mark-O-Rourke-Bibby-FS

Mark O’Rourke is Managing Director of Bibby Financial Services Ireland.

With more than 35 years’ experience of supporting SMEs and 40 offices worldwide, Bibby Financial Services has a unique understanding of SMEs both within Ireland and in overseas markets. The Irish operation was established in 2006 and has an expert team of 30 employees based in Sandyford, Dublin. For more information about Bibby Financial Services Ireland, visit www.bibbyfinancialservices.ie.