Why Conquering the Wild World of International Sales
Less than 1 percent of U.S. businesses export, and of those, nearly two-thirds export to only one country. Even more staggering, 95 percent of the world’s consumers live outside of the United States. These figures were brought to light in 2011 when the Obama administration implemented the National Export Initiative (NEI), the goal of which was to double U.S. exports in four years. Today, the NEI has entered its second phase, the NEI/NEXT, with a new and improved customer service strategy that further focuses on connecting U.S. businesses to consumers outside the United States by providing more specific information on export opportunities.
Akin to the exploration of the Wild West and the California Gold Rush, exploring the wild world of international sales invokes the same spirit of excitement, especially given the lackluster economy of recent years. The statistics imply a great amount of opportunity for U.S. businesses but lead to daunting questions, like: How do I take advantage of international opportunities? Where do I focus my resources? How do I position myself for success? How do I compete?
It has been the nature of U.S. businesses to “play it safe” when it comes to expanding internationally. Our relative lack of international trade experience may have something to do with that (our U.S. history of just over 230 years pales in comparison to the thousands of trading years the Middle East, Europe and Asia have). Also, the fact that the U.S. economy has been its own reliable consumer hasn’t forced us to look hard beyond our borders. Based on the statistics, U.S. manufacturers are in position to take advantage of their own “gold rush” in the world of international business.
U.S. manufacturers have an undeniably strong reputation overseas. Our products and services are on par with those of other strong manufacturing and exporting countries, such as Germany and Japan, to name just two. Consumers seek out high-quality U.S. goods, equipment and services. So what – aside from our tendency to “play it safe” – is holding us back? What are we missing? What do our competitors know that we don’t?
Suppose you are a small U.S. manufacturer with a potential sale on the horizon. The sale could be for $50,000, or even $500,000. For a domestic sale, your terms range from “open account,” which may require a deposit from the purchaser, to full payment prior to shipment. For the same sale to an international customer, you automatically require payment in full or a letter of credit prior to shipment. What is the difference between the two types of sales? Risk! In the latter case, you think, “I don’t know the buyer. I’m not taking any chances.” But, take note: before you have even made that sale, your payment terms have told your customer something very important about you and your ability to sell internationally. You’re not willing to negotiate, nor do you fully understand what it takes for your buyer to do business with you.
Other questions you may consider include: How much do I know about the buyer’s ability to secure financing? What does it takes to open a letter of credit in the buyer’s homeland? What sort of collateral will the buyer need to secure its loan? What are the local interest rates? If you don’t know or aren’t comfortable with the answers to these questions and are hesitant to enter into a sales contract, then you are at risk of losing the sale before your negotiations have even started.
Understanding the sales/purchase transaction from your prospective customer’s perspective and having the tools to help your customer buy more easily from you is critical when selling internationally. Our foreign competitors, who have been trading for many more years than us, utilize such tools. Imagine if you were hunting for gold in the West and everyone had a map, but you didn’t use yours!
One very important tool is trade credit insurance. Our foreign competitors use this tool far more frequently than companies here in the United States.
What does trade credit insurance provide?
- Risk Mitigation. It protects you should your buyer not pay you.
- Sales Tool. Knowing that your receivables are insured allows you to negotiate your sale more aggressively.
- Financing Tool. Insured receivables put you in a better position with your own lender. Insuring your foreign receivables may allow your bank to include foreign receivables in your borrowing base.
- Credit Evaluation. Having an insurance company vet your buyers and establish coverage limits, based on their extensive information and knowledge, reduces your credit department’s responsibilities in establishing terms for overseas buyers.
How do you get started?
Unlike financing, applying for credit insurance does not require personal guarantees or volumes of personal and business forms. Generally, completing a simple application that requests information regarding your sales and collection practices, and sometimes limited financial data, is sufficient to get started. To obtain insurance quotes, you can approach insurers directly or go through a broker that works on behalf of several insurers. Either approach will yield competitive bids. Once you secure quotes, review the quotes and policies carefully and make sure the chosen policy meets your credit insurance needs and facilitates your sales goals.
What does the marketplace look like?
Fewer than 20 companies with a U.S. presence specialize in trade credit insurance. They can insure domestic or international sales, or both. Additionally, the Export-Import Bank of the United States offers export credit insurance. Determining which insurers to approach will depend mainly on your volume of receivables and your sales markets (domestic/foreign, or both). The government program in particular offers many advantages for companies that export U.S.-made goods, including no minimum premiums.
Consider the Risks
Take a look at your balance sheet. Most likely, your cash, inventory and assets (building, machinery, etc.) are all insured. Yet, that line item just under cash, your receivables, is probably left uninsured. Could your business withstand a receivable going bad? How are your foreign competitors able to offer superior terms and take the risk?
Navigating the world of international sales is not easy, but it is doable. Companies that take the time to learn about and invest in tools to help them sell – such as trade credit insurance – can dramatically advance their sales, safely. Knowing that sales opportunities exist and using important tools wisely will help you conquer the wild, wild world of international sales.
About the Author
Jenny Norris is the Northeast regional manager for Meridian Finance Group. Meridian specializes in both domestic and international trade credit insurance and in 2014 was presented the President’s “E” Award for making significant contributions to U.S. exports and international trade. Jenny, who is based in Glastonbury, Connecticut, can be reached at firstname.lastname@example.org.