Small- and medium-sized U.S. businesses are eager to launch their operations outside national borders and ink deals with foreign companies and customers. But new research from Euler Hermes finds that these overseas corporate buyers are ditching out on the bill, and this non-payment is becoming a major barrier to SMEs that want to go global.
In their 2015 U.S. Export Survey, analysts at Euler Hermes calculated a $58 billion opportunity for U.S. companies to snag by boosting export efforts. Two-thirds of SMEs surveyed by the group agreed that exports can help fuel the growth of their businesses, and for those small- and medium-sized companies that are exporting, they predict they could see a 26.3-percent increase in their revenues within the next three years.
The potential here is significant, analysts said, despite U.S. exports seeing a 3-percent drop in the first half of the year thanks to a weakened U.S. dollar and weakened international demand.
Suppliers in the chemical, mechanical and agrifood industries are seeing the most heightened demand for international trade. While the majority (73 percent) of non-exporting SMEs surveyed by Euler Hermes said it’s their product line that prevents them from branching out internationally, one-fifth said they are interested in exporting overseas. An impressive 80 percent of those businesses, researchers said, are planning to export their products outside the U.S. in the next four years.
More than three-quarters of SMEs said exporting is crucial for boosting sales and profits, and nearly the same amount said exporting can help safeguard their businesses during troubling times at home, while international sales can also pull a small business up into a lead position of their industry.
But even as SMEs are eager to kickstart U.S. exports again, Euler Hermes uncovered some troubling statistics about what is causing them to remain at home.
Ditching Out On The Bill
According to the report, one-third of SME exporters have experienced non-payment in the last 12 months related to an export shipment. On average, SMEs experienced 4.1 similar incidents. Nearly one-third of SMEs say that in general, their overseas buyers demand longer payment terms.
[bctt tweet=”1/3 of SME exporters experienced non-payment related to an export shipment”]
The findings suggest that the SMEs looking to branch out across the border are tasked with exploring ways to protect their business when doing so.
Small- and medium-sized businesses aren’t launching overseas sales efforts without getting educated on the risks. According to Euler Hermes, 39 percent of SMEs said that their overseas buyers are more risky than their domestic ones.
More than one-fifth of the businesses surveyed said that they feel the need to add extra risk protection to their operations when they conduct international business.
Nearly half (47 percent) of SME exporters said they are familiar with trade credit insurance options. But there are other ways smaller companies are seeking to protect their businesses – and their finances – when working overseas.
Researchers found that nearly half see credit reporting services as a key way to protect against overseas buyer risk, and about one-third view letters of credit and advance cash payments as useful ways to mitigate risk, too.
Euler Hermes, however, warned that requesting advance payment could mean a U.S. SME misses out on a sale to an overseas competitor willing to take 30, 60 or even 90 day payment terms.
Analysts pointed to several factors that make international exports a challenge for SMEs when it comes to payments. Businesses should be well-versed in foreign exchange, especially when invoices are issued in local currency. Geographical issues like embargos, as well as individual local market risks should also be considered. Further, supplier protection rules are far from standardized across national jurisdictions.
The decision to work with a local partner in an overseas market, like a distributor, should also be taken into account when SMEs work out their working capital needs, the report said.
[bctt tweet=”‘There is no secret recipe to successful exporting'”]
“There is no secret recipe to successful exporting but there are some best practices for trade receivables management,” the report concluded. And while Euler Hermes analysts agreed that risk mitigation is key, U.S. SMEs would also be wise to do their research when launching overseas sales efforts. “Prevention is always best,” the report said, “but when push comes to shove, local payment culture and collection practices need to be known.”