Finance and business structure for international trade

Navigating your export journey with Santander

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Trading with international partners for the first time – or extending such trade – is a financial investment. For example, it may take longer to get paid when selling overseas, or suppliers in certain markets may require upfront payments, but this can all be addressed through careful cashflow management and an ongoing review of working capital requirements.

There are lots of possibilities to consider. Export finance tools can help reduce or bridge cashflow gaps or provide security when shipping valuable stock. These tools include:

  • Bonds and guarantees – available from banks, these solutions protect the buyer; if the seller fails to deliver the goods it has promised, its bank will provide financial compensation.
  • Letters of credit – these are issued by a bank, guaranteeing that the buyer’s payment will be received on time and for the correct amount, assuming goods have been supplied as agreed. If the buyer doesn’t pay the amount agreed, the bank will cover the shortfall. Letters of credit can also protect the buyer – the holder of the letter of credit – with the supplier only paid once the goods have been shipped.
  • Trade finance – these services are aimed at businesses purchasing goods, whether from international or domestic sellers. They’re typically provided for specific shipments of goods and for specific periods of time, with the finance typically secured against the goods themselves.

Banks and other finance providers also offer a broad range of other services, including products such as invoice and asset finance, which could also be useful to support international trade. It’s important to take the time necessary to work out how to build your trade on solid financial foundations – including a safety net to protect you from hold-ups or problems that could delay payments. Your business may even be entitled to government support - the Department of International Trade’s UK Export Finance unit offers a range of financing and insurance schemes.

Your business will also need to consider other financial services solutions they may not have used before. For example, how will you make payments to international suppliers in a timely and cost-effective way? How will you manage foreign exchange risk – the fact that movements in exchange rates may make buying or selling overseas more or less profitable than expected? Finding the right providers to help you consider and manage these demands will be important.

Structure your business for trading internationally

The other consideration is how you structure your business. Exporters often start out by testing the waters in new markets – for example selling online or through a local distributor – but if sales take off, it may make sense to have a local entity in an overseas market. For example, many businesses have chosen to set up subsidiaries in the European Union since the UK left the trading bloc, as this gives them access to EU regulation and the single market.

However, setting up an overseas entity isn’t a step to take lightly. You’ll need specialist legal and accounting advice. You’ll need to recruit local staff, meaning that you’ll also need to handle human resources, salary, and benefits locally. An overseas entity must be set up and operated in line with all local regulation, including laws on how it’s controlled from overseas. Even deciding where to base the entity – which European Union market, for example – can be tricky. Professional support on all these issues is therefore crucial. 

Key action points:

  • Identify additional financial pressures that your plans for overseas trade could put on your business’s working capital. Consider the best financing solutions to ease those pressures and mitigate risk.
  • Check your entitlement to government support on export finance and insurance, as well as how this support fits with what is available to you from other providers.
  • Consider what additional financial services you now need, particularly in relation to international payments and foreign exchange.
  • Decide when – and if – you might need to set up an overseas entity. Take professional advice on where and how to do this.

How Santander can help

Santander Navigator is a digital platform that collates our years of experience and knowledge into one online portal to help to make international trade simple. The platform is a gateway to identifying growth opportunities, navigating bureaucratic challenges, optimising logistics, and building connections, saving you both time and money as you grow. 

As every business is different, Santander Navigator offers each user a tailored experience based on their needs. So, no matter where you are on your international journey, Santander Navigator is here to help you take the next step. For more information visit Santander Navigator.

Santander Navigator’s ‘Navigating your export journey’ series will provide you with nine on-demand, easy-to-consume, virtual drop-in sessions where our international trade providers will be able to offer a one-stop shop to support overseas trade. For more information register here.

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