Exporters are closing the UK’s trade gap, but to continue to grow overseas British businesses need finance, as Joe McGrath reports
British companies have been embracing international exports once more in recent months, latest figures from the Office for National Statistics (ONS) suggest.
The ONS figures show that British businesses cut the trade deficit by 16 per cent in the three months to the end of September from £10.1 billion during the previous quarter to £8.5 billion.
Furthermore, the monthly deficit is also down, dropping from £4.5 billion in August to £2.7 billion in September, sparking hopes that government projections for the rebalancing of the economy are taking shape.
And while businesses new to operating on the global stage are understandably nervous, recent research published by Barclays shows that the payback is more than worthwhile.
Businesses generate an average growth of 30 per cent after exporting for just two years
The British banking group commissioned independent research among 1,500 UK small and medium-sized enterprises (SMEs), which were all at different stages along the exporting process.
The findings were startling. Most striking was that businesses generate an average growth of 30 per cent after exporting for just two years and that almost a third of SMEs see a positive impact on their bottom line within just six months of expanding into international markets. The fact that SMEs see such an effect on their business within such a short time is largely down to the financial tools which are now on offer for those entering international markets for the first time.
The choice of invoice financing, and currency and international financial advisory services has improved significantly in recent years as a result of leaps in technology, making it easier for businesses to operate internationally. Nowhere is this more evident than in invoice financing, where there are now a plethora of options for companies looking to expand their international horizons.
James Hardy, head of Europe at Alibaba.com, explains invoice finance in simple terms as “one method to gain access to money that is owed to you before it has been paid”. He says: “This instant injection of funds can be extremely beneficial to cash flow, enabling you to carry out new business while waiting for old accounts to be settled.”
The latest variant of invoice finance to develop is invoice trading. Invoice finance has been around for years, but technological advances have now made the process available on-demand and allowed sellers to auction invoices to the best bidder instantly, whenever they need funds.
Christopher Shaw, chief executive of invoice trading group Platform Black, explains that, for many ambitious companies, the plan to expand overseas can often remain just that – a plan – because cash flow is just too tight to invest.
Mr Shaw says invoice trading allows businesses to sell their unpaid invoices to raise funds straight away and free up cash that would otherwise be tied up in unpaid invoices. He explains: “Those buying the invoices – who receive a fee in return for lending the cash – include institutional and private investors.”
Credit is not the only hurdle facing businesses when venturing abroad. Currency is one of the most common areas where businesses misjudge the complexities. As companies get better at handling currency fluctuations, UK businesses have found ways around the potential difficulties.
Pamela Petty, managing director and finance director at The Ebac Group, based in County Durham, explains: “Mitigating the risks of trading in a foreign currency is one of the keys to successful exporting. The danger is one of falling into the trap of trying to make money from fluctuating currencies, which is a risky gamble.
“We have adopted a policy based upon forward-selling and locking the currency in at a particular rate – one which we know our business can make money from – to cover a specific trading period. It is pointless and dangerous investing on variables, particularly when the currency markets are so volatile.”