Expanding trade into new markets can be one of the most exciting things about running a business. It can give you the chance to find new customers, to test your growth potential and diversify your customer portfolio, while underpinning your international reputation.
But new opportunities also offer new risks. When expanding into an unknown market, there can be many pitfalls. Here are five of the greatest risks you may encounter when trading on credit and areas to consider when developing your new market strategy.
1) Lack of financial information
When you trade on an open account with new customers, it is important to have a good insight into their finances in order to be able to assess their creditworthiness. However, it is not always possible to buy up-to-date information, and in some countries, there is no requirement for businesses to publish their accounts. In these instances, it may be necessary to make direct contact with the customer and ask them to share relevant documents.
2) Sales and delivery terms: Retention of title
It is important to focus on the different standards and laws concerning sales and delivery terms in a new market. In several markets, for example, it is important to have retention of title written into contracts. The procedure and laws vary from country to country, but the basic idea behind retention of title is that you legally own the products you have sold and shipped until they have been paid for.
3) Economic and political instability
It is vital to keep a close eye on developments in the local market. A sharp decline in purchasing power can, for example, lead to more bankruptcies. This can also make local banks more risk averse and prompt them to pull back financing. A changeable political climate can mean the sudden withdrawals of export licenses or introduction of new customs regulations.
4) Weak currency
Weak currencies that a vulnerable to fluctuating exchange rates can present a heightened risk of default. This can be especially true of lower-income countries where otherwise stable customers may find it difficult to obtain enough dollars or euros to pay their bills on time.
5) Not enough local knowledge
In-depth knowledge of your new market is essential for avoiding blind spots with local risks. If you are expanding into new geographies you may find language, time zones and local market regulations are a challenge. Robust market research will help, including an understanding of your competitors. For example, if you want to avoid exposing yourself to risks through unnecessarily long credit periods, you must be able to benchmark yourself against the general trading conditions for companies in your sector in the relevant market.
How to protect your business from new market risks
One of the best ways to minimise trading risks when entering a new market is to work with a credit insurer that is familiar with the market and, ideally, has a local presence. This will include an understanding of the local laws and customs as well as the wider economic or market risks. For example, we at Atradius have offices in more than 50 countries and local risk underwriters with experience and expertise in even more.
With us, you avoid wasting time onboarding customers who ultimately turn out to have poor creditworthiness. We have active coverage of millions of companies worldwide and have very likely already researched and assessed your new potential customers.
For an at a glance view of trading risks throughout the world, see the Atradius Country Risk Map.
