What to consider as you boost your exports during Covid-19 and Brexit

Rupert Cutler, Director of BExA member Holtarka Ltd, shares his thoughts on what exporters need to consider as they navigate the dual pressures of Covid-19 and Brexit in order to ensure that they "keep selling, get paid and grow exports profitably".

How is your business doing? A downturn forces a review where different products and markets may be considered. The sooner you recognise risks the less vulnerable is your profitability.

What have you done to support and protect your business?

  • What risk review following live disaster scenarios is within your Business Continuity Plan (options to keep you going and predetermined steps) as part of your strategy with external support?
  • Has your sales team moved to on-line and telephone conferencing?
  • Do you have staff and overseas travel and health insurance (accident & repatriation)? If you cannot travel who can represent you on the ground?
  • Stay ahead by questioning what works and what could be problematic.

 

What are your lead times to delivery and payment?

  • Supply chain (being the origin and route of all components of your product to your factory and onward to the customer) and quality management anticipates threats to your profits. If vessels and ports have lower availability with more checks what are the alternatives?
  • Is all your production in one site and have you had to self-isolate anyone?
  • What are the Force Majeure provisions in your export contract including the pandemic (stated mutual break clauses enabling either you or the buyer to walk away from the contract without any penalty)?

 

“You have won the export contract, what next?”

  • Finance
  • Production
  • Export freight, regulations & taxes
  • Contract Law
  • Loss prevention & Insurance
  • Shipment to Buyer
  • Payment

 

Finance

This may be needed for the main contract itself (Build) and for contract essential Supplementary Services (Delivery and Payment)

The export contract is your legally enforceable agreement to supply specified goods and/or services to the overseas buyer with a stated description of how this is to be done by you, conditions for you and the buyer, defined timelines for delivery and agreed pricing and the currency for your payment.

Main Contract finance to Build If not self-financed you will need to borrow externally from current or new sources of finance for the loan from:

  • Banks
  • Trade Funds
  • Alternative Financiers (Private Family Offices/Crowdfunding)
  • UK Export Credit Agency (UK Export Finance), its purpose being to support UK exporters with finance and/or insurance where the commercial providers cannot help on their own.

 

Supplementary Services for Delivery and Payment being the costs and fees in addition to the total agreed purchase price for the contract which can include:-

  • Bonds - a financial support mechanism which can be realised if certain terms are not met and can include Bid, Tender and Performance bonds issued on your behalf by your Bank or an Insurance Company for a percentage of the total contract value
  • Corporate Guarantees - an on-demand secured asset or cash to support the loan
  • Letters of Credit - similar to a bond and usually provided by your financier with variance
  • Escrow Deposits - monies placed into an account with control over their use/withdrawal
  • Freight - the cost of moving the goods to the buyer
  • Taxes - duties and/or VAT payable in the UK or overseas
  • Insurance - loss or damage to the goods and/or non-payment post-delivery
  • Legal - to draft and oversee the export contract protecting your commercial rights.

 

Production Design & Materials Third Party deliverables on time for the Supply Chain components including storage and transit (from where to where and is the conveyance & shipper and storage acceptable) prior to and after assembly/testing/shipping.

Export freight, regulation duties & taxes What types apply and route for transit(s)?

Law – Do the Contract terms state the rights and responsibilities of you and the buyer?  Are the terms clearly understood and enforceable?

Points to consider:

  • New tailored/bespoke or framework contract and can it be agreed electronically?
  • When does title/ownership transfer (pre or post payment)
  • How do the terms and conditions direct the contract, Force Majeure and/or penalties
  • Jurisdiction and arbitration provisions governing the contract (i.e. Law of England & Wales, International Chamber of Commerce).

Insurance – What policy limits/sums insured do you have in place and for what types of possible losses to your company? Any requirements to retain uncovered part or all of losses?

  • Fire and related perils including business interruption at your site or of your suppliers/co-contractors
  • Directors & Officers/Professional Indemnity protecting the company and its officers from legal costs of defending allegations or losses from errors made in decisions and activities.
  • If the contract is for goods are you responsible for delivery to the customer or are you selling from your factory gate? For external physical damage to the goods in transit and storage
  • Are there any requirements for local & contract mandatory coverage (General Liability/Product Liability)
  • Credit and non-payment for protracted default or insolvency of the buyer
  • Political Risks (Expropriation/Embargo & Sanctions/Terrorism/War on Land)

Shipment to Buyer how, when, where and alternate routes and any temporary storage?

Payment what currency will you be paid in and is it freely convertible? Who is the overseas correspondent bank to pay your bank and how long will payment take from the buyers account to your nominated account?

Timeline to success

The contract may have taken time to win, closing it may also take longer than you think. In our experience the longer the lead time the more likely you will succeed with robust and affordable support to the contract.

Financiers, lawyers and insurers are now working remotely which adds time and with demands from others it is key to have your request clearly supported with all the necessary information about you, the contract and the buyer. Off the shelf or standard products may not meet the needs and expectations of you, the buyer or the financier.

Your stipulations for finance and insurance must always be considered within your risk context, in a timely and cost-effective manner for increased profitability.

Clear presentation can move external support for a new export contract from a “no” to a “maybe” to a negotiated “yes”.

Success is measured in your profit, reputation and repeat business and gives you access to:-

  • New customers and markets;
  • UK based lenders that finance trade and investment worldwide;
  • UK Export Finance;
  • Non-payment & Political Risks insurance to enable contract progression

 

Keep selling, get paid, grow exports profitably.

 

About the author:

Rupert Cutler LLB (Hons) ACII CIB is Director and Principal of Holtarka Limited, an independent risk and insurance consultancy with over thirty year's experience in the international trade finance and investment insurance sector in both the public and private fields.

We are also a FCA regulated Authorised Representative of Lloyds Broker Bellwood Prestbury Limited (www.bellwoodprestbury.com).

 

Posted 27 Oct 2020