The US is the UK’s largest individual export market, accounting for roughly a sixth of Britain’s external trade, and the opportunity is growing every year, according to UK Trade and Investment (UKTI).
However, despite the lack of a language barrier, entering the US is not simple. It takes a lot of research and careful consideration as well as flexibility. British companies are often surprised at the thickness of the book of rules and regulations they need to keep on top of at the same time as they are taken aback with how detailed each trade partner’s list of procedures, requirements and payment terms can be.
Once you are set up and trading well, dealing with American partners can be very straightforward but the initial setup can be costly and can put serious strain on cash flow, according to Stuart Dunbar, managing director of Cheshire based food company, Oak Exports.
“You really have to dot your I’s and cross your T’s to do business in America,” he says. “It comes as quite a surprise how many rules and regulations they have, particularly around food. Ingredients and colourants that are allowed here may not be over there, so you really have to keep on top of legislation and ensure you get the correct paper work. Companies are very precise and exact too and will expect you to work to terms and conditions that look to us over here like a huge thick telephone directory.
“So, it takes a lot of time and investment to get going. However, once you’re up and running, they’re great people to deal with, although the sixty to ninety days payment terms can set you back a bit if you’re used to working to the normal thirty days in the UK.”
This can represent a serious impact on cash flow which Dunbar circumvents through invoice financing whereby a financial services provider in Oak Exports’ case Bibby Financial Services – pays the value of a shipment up front, minus a commission.
Novel payment request
With its stricter business regime and its own system of standards, often getting products approved for American exports can be more costly than opening up the EU. Certainly Fascia Graphics finds financing the ‘UL Certification’ manufacturers need for each of the products they export to the US is costly enough to require what may seem an unusual request. Managing director Paul Bennett suggests SMEs request American importers pay up front for their goods to help fend off any cash flow issues.
“The investment in achieving the required UL standards can cost anything from £1,000 to £2,500 per product, and then ongoing inspection and certification costs are also involved,” he says.
“So, as a company-wide policy we also agree Proforma invoicing before we establish a business relationship, and for new customers, we ask for payment before manufacture for higher value transactions, or before despatch for small orders. This provides not only peace of mind, but it can significantly improve cash flow.”
Serious contenders
However, SMEs who are a little further down the road in exporting to the US offer a word of caution to businesses who expect partners to pay up front for goods. While this is quite often advisable, and accepted, in some Middle East markets, it is not common practice among major American companies.
According to Ian Linaker, CEO of men’s skincare brand, Scaramouche and Fandango, asking for payment up front with large, established importers might raise alarm bells. “In our experience the American luxury retailers we work with, such as Bloomingdale’s, want a long term relationship and don’t want to start stocking someone who’ll be out of business next month,” he says.
“So, to them, it’s just not worth working with anyone who can’t survive a sixty or ninety day wait for payment. It can be tough for a small company because we ship a lot of stock out to America and then serve orders from there, rather than fulfilling each order one at a time from the UK. It saves on shipping but it also means we have of money tied up in stock.”
To get around the issues of money being tied up in stock and orders awaiting payment, Linaker has traditionally used invoice financing. However, with progress going so well at home and in America, the company decided to seek external investment and, in July, raised £150,000 from crowdfunding site, CrowdCube.
“Raising the investment has been really useful because it’s given us the money to stock up America and to service orders from the east coast which we then won’t get paid for until, typically, sixty or ninety days later,” he says. “We still occasionally use invoice financing but only now when we need our cash for stock elsewhere. The beauty is, we get to decide now, whereas in the past we had no choice, we had to use invoice financing to keep going.”
So, the experience of British SMEs in opening up the US is varied. What remains constant, however, is that researching the market, adjusting to its stricter regulation culture and then typically working to sixty or ninety day payment terms puts a strain on cash flow.
This is prompting companies to explore using either invoice financing or seeking external finance to tide them over until shipments turn into payments. If an SME can manage its cash flow, dealing with Britain’s biggest individual trading partner can be very fulfilling, but first the gap between signing a deal and being remunerated has to be successfully spanned.
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