2.3.1.Â Â Â Â Â Introduction
Trading with overseas suppliers raises a number of issues you may not be familiar with from trading within the your own country. Typically, these include language differences, new payment methods and increased paperwork requirements.
However, with a little research and planning these challenges are easily overcome. Widening your purchasing to the international market can give you a significant competitive advantage.
2.3.2.Â Â Â Â Â Â The challenges of sourcing overseas
Trading with overseas businesses differs from trading within your own country. New challenges are raised by the distances involved, by differences between countries, and by rules that govern international trading.
Don’t assume that the same national rules will apply, particularly when dealing with a country outside the European Union. Factors to consider include:
â€˘whether there are import or export restrictions at either end of the transaction â€˘whether technical standards in your supplier’s country meet UK requirements
â€˘who is liable if a product causes harm or loss
There is a range of other factors you should bear in mind:
â€˘Language differences are important. It’s not just a matter of communication – make sure any labelling or other printed materials are error-free.
â€˘Payment methods for international transactions are a bit more complicated.
â€˘Shipping procedures are also more complex, given the increased distances and the need to cross borders.
2.3.3.Â Â Â Â Â Â Finding overseas suppliers
As with finding a domestic supplier, careful research is the key to identifying overseas suppliers. You will have to identify countries to trade with, as well as individual suppliers within those countries.
Identifying suitable countries
For most goods and materials you can choose to import from a wide range of countries. Expect a trade-off between prices and levels of regulation and protection. Suppliers in developing countries may be cheaper but it may be more difficult to resolve any problems.
2.3.4.Â Â Â Â Â Choosing an overseas supplier
You should have the same priorities in mind when selecting an overseas supplier as when choosing a UK-based one. You need to get the right price and quality, while making sure the supplier can be relied upon to consistently meet high standards.
The reliability of your supplier is crucial. While a competitive price is also important, make sure that low prices don’t come with unacceptable compromises on quality or on the level of service you’ll receive.
It’s important to research supplier reliability. If possible, visit the supplier. Look at their work and their production system.
Find out as much as you can about the supplier. Talk to:
â€˘any UK references the supplier can give you
â€˘UK importers with experience in the market
â€˘trade associations and other importers in your sector
Financial checks of overseas suppliers can be difficult due to a lack of accessible financial information. See if your bank’s international trade team can carry out a status query – a query into the company’s financial standing on your behalf.
2.3.5.Â Â Â Â Â Building solid relationships with overseas suppliers
Trust is a crucial element of any supplier relationship. While it can take time and planning to build a solid relationship with overseas suppliers, doing so makes it more likely that you’ll do increased business with them. It may even enable you to negotiate more favourable terms.
Build trust gradually
The key is to build the trading relationship slowly. Initially you should leave nothing to chance. Draw up written contracts that are clear and unambiguous.
Communication is an obvious potential obstacle when dealing with overseas suppliers. Even simple actions such as routine phone calls can be complicated by factors such as time differences and low-quality phone connections.
Would it help to use local interpreters, especially for key meetings, to avoid misunderstandings?
Monitor, review and adapt
Make sure you monitor key aspects of the new supplier relationship. This will make it easy to identify areas for possible improvement.
Schedule progress reviews with the supplier. If there have been any problems, decide together how to resolve them
2.3.6.Â Â Â Â Â Â Methods of paying overseas suppliers
There are four main methods for paying overseas suppliers for the goods you import from them – or for receiving payment if you’re exporting overseas:
â€˘Advance payment. The supplier only ships goods once payment has been received. â€˘Letters of credit. The importer’s bank guarantees to pay when presented with a set of specified export documents by the supplier – the bank guarantee increases the cost of this method.
â€˘Documentary collection. When goods are shipped, the supplier sends the export documents to the importer’s bank. These documents are only given to the importer when payment has been made.
â€˘Open account trading. The supplier ships goods to the importer, and asks for payment within an agreed period. Minimise payment-related risks
Match payments to cashflow needs
Payment methods can have a major impact on your cashflow position. Most banks offer import finance packages to bridge the period between paying for your imports and receiving payment when you sell them on to your customers.
2.3.7.Â Â Â Â Â Drawing up contracts with overseas suppliers
There are many sources of potential confusion between an importer and an overseas supplier, from language difficulties to differences in business practices.
Drawing up a clear written contract is the best way to avoid problems. If disagreements do arise, they will be easier to resolve if you have a written contract rather than a verbal agreement.
Your contract should make all aspects of the trading process as clear as possible – what will happen, when it will happen, and exactly what each party is responsible for at each stage.