Export Resource Centre

When exploring opportunities for international business, the value of thorough research cannot be overstated. Once you've identified a potential market or trading partner, these are some of the key checks you need to make to help maximise your growth potential and foster mutually-beneficial trading relationships.

Doing your research

Maintaining high standards of due diligence is one of the keys to international success. Background research should include checking bank and trade credit references. Thorough due diligence can help to protect you from undesirable trading relationships which could damage your profits and your reputation.

Assessing country risk

Countries that have the most growth potential can often be the most unstable. If a market has a volatile foreign exchange rate, changing banking regulations or restrictions on inward investment, this warrants careful investigation. It may be these are risks you're unwilling to take.

Due diligence applies equally on the supply side. Importers need to consider whether potential suppliers have robust business recovery arrangements in place, and how their ability to deliver might be impacted by any known country risks.

Vetting a trading partner

Nothing beats a face-to-face meeting before starting a new international business relationship. But if that's not possible, there are alternative ways to assess if a company is all they claim to be. To minimise potential losses through fraud, be alert to behaviour and requests that seem unusual or that differ from standard practice.

Points to check

• Correspondence
  Scrutinise all correspondence received, eg letters, business forms, invoices etc. If they don't feature a professionally designed logo, this may be a warning sign.
• Addresses
  Is the address complete? Does it actually exist? Use online mapping services to see a street view to help gauge if it's authentic.
• Online presence
  Established businesses usually have registered domain names. Does their website look like a professional shop window for their business activities?
• Social media activity
  Comments from customers and employees can be a useful starting point for further investigations – but remember not to believe everything you read.
• Trade credit insurance
  Consider using a trade credit insurance provider to vet new trading partners – this can be an invaluable way to verify their credibility and suitability.
• Site visit
  A face-to-face meeting lets you vet your potential customer or supplier and how they do business, which can help to inspire more confidence.

Pay close attention to these warning signs

• Is this potential trading partner reluctant to provide clear answers to routine financial, commercial, technical or other questions?
• Is the transaction in keeping with their stated business strategy?
• Are they deviating from their historical pattern of trading activity by value, frequency or type of goods?
• Is pressure or aggression being applied?
• Are there any comments about the trading partner on social media worthy of further investigation?
• Are there significant discrepancies between the description of goods on the bill of lading (or invoice) and the actual goods shipped?
• Have there been inconsistencies with the shipment location, terms or descriptions and the Letter of Credit? Have they made unauthorised alterations to documents?
• Do they refuse to provide documents to prove shipment of goods?
• Have there been unexplained changes to payment instructions?
• Are they issuing instructions to pay a third party? Is a shell company party to the transaction?
• Does the transaction involve the receipt of cash (or other payments) from third parties that have no apparent connection?
• Are they offering unusually favourable terms (eg pricing substantially far above or below the expected market rate, an interest rate substantially above/ below the prevailing rate, or a lump sum cash payment)?
• Does the transaction involve an unusual trigger point for payment (eg before goods are shipped, with no documentation required)?
• Does the shipment not make economic sense (eg the use of a 40-foot container to transport a small amount of relatively low-value goods)?

If the answer to any of the above is yes, you may wish to reconsider your relationship.

International business means international banking, which can open your business to amazing opportunities, but also a potential increase in risk of fraud. Here you'll find out how to manage your international accounts effectively and make and receive foreign payments more securely.

Managing international bank accounts

Successful international businesses often have a number of overseas bank accounts. To help you manage time differences and keep track of account activity, we recommend that you:

• set up good account management processes
• use electronic reporting
• review balances and transactions daily for suspicious activity

Consider having multiple levels of approval in relation to who can open bank accounts and who controls day-to-day operations. Having appropriate processes in place is particularly important where a business employs staff overseas.

Rigorous security procedures should be maintained in relation to any online banking activity. Cyber threats take many forms so policies relating to storage of banking credentials, opening of suspicious emails and using personal electronic equipment and USB keys should be properly enforced.

Making and receiving international payments

Many businesses enter into international trade with small transactions, shipping goods on open account, sending an invoice and getting paid in 30 days. This is known as open account trading. It's the simplest and the least expensive method of payment, yet it involves offering limited credit which requires a certain level of confidence in your trading partner's ability and/or willingness to pay.

The payment risk ladder

As more orders come in and opportunities increase, so does the scope for non-payment. Other trading instruments, such as bills (documentary collections) and letters of credit, can provide you with greater credit control. Your relationship manager can help you decide which of the following ways to make and receive payments from abroad are most appropriate to your needs.

Safeguarding online transfers

Online banking is a powerful and efficient way of making international payments, but good security procedures are essential to minimise the chance of external fraud.

Phishing

Phishing scams are attempts by criminals to 'fish' for the security information used to access online banking systems. Be suspicious of any emails requesting banking details, such as the security credentials used for logging in to bank accounts. Any email appearing to come from HSBC asking for banking details must be deleted immediately. We will never ask you for this information.

Social engineering

Social engineering is when criminals gain a relatively modest amount of personal information about an employee from social media and use it to craft more effective phishing emails using subject lines relevant to a recent social media interaction. We recommend that your business has and enforces a rigorous social media policy.

Employee fraud

Businesses also experience fraud from employees so there's a need to apply the same precautions to the transfer of international funds as to domestic funds. Robust procedures, such as ensuring that no single employee has the power to transfer funds are vital to reducing your risk of employee fraud.

Trading abroad for the first time is a significant opportunity for any business. Yet it also brings with it some potential risks that have to be carefully managed. Here's how you can prepare for and mitigate the risks posed by currency fluctuations and costly delays.

Managing currency fluctuations

You can't do much about currency fluctuations, but you can reduce the negative impact they might have on your business. You can sometimes even use foreign currency transactions to make your business more profitable and attractive to overseas customers.

Currency as a competitive tool

Importers are often more comfortable paying in their own currency so there's a competitive opportunity in being able to accept payment in the local currency. However, fluctuating exchange rates may affect profitability and also make it more difficult to forecast cash flow.

Hedging instruments

There are a number of means of mitigating the effect of currency fluctuations. Many international businesses use forward contracts along side currency options to create a foreign exchange hedging strategy that provides both certainty and flexibility:

• A Forward Contract is a contract to exchange a fixed amount of currency at a pre-agreed rate on a specific date. It provides certainty around the exchange rate but is a contractual obligation.
• A Currency Option is a similar instrument, except that the buyer of an option has the right (but not an obligation) to exchange a fixed amount of currency at a pre-agreed rate.

Avoiding delays and costs

Making sure you've got the right documentation isn't the most exciting part of doing business overseas. But as it helps you avoid delays and hidden costs, it's an essential part of profitable trading.

Transfer of responsibility

The point at which responsibility for the goods passes from the exporter to the importer will often be expressed using Incoterms® rules (Incoterms is a trademark of the International Chamber of Commerce). If using Incoterms® rules in a sales contract, it's important to understand exactly what they mean to ensure you avoid potential issues, such as underinsurance of goods or non-compliance with the rules.

Contractual documentation and Letters of Credit

The sales contract will often list the method of transport and other documents that importer needs to clear the goods through customs and satisfy any other import requirements. The exporter will usually need to present all these documents to trigger the importer's obligation to pay.

It's important to ensure that all the requisite documents are available. If the wrong documentation is supplied or it contains errors, the importer might reject the delivery and any resulting delays and extra costs may be the exporter's responsibility. Correct documentation is particularly important if payment is being made under a Letter of Credit.

Potential issues to watch out for

• Importing countries may have different requirements for layout and format, verification, and the number of copies or originals required.
• Incomplete, incorrect or expired documents can mean the exporter is no longer benefiting from the protection of a Letter of Credit.
• Specific documents may be required to support customs declarations and to satisfy import/export requirements, as well as the usual evidence of shipment of goods and invoice.

A good reputation is everything when you're taking your business overseas. This section looks at ways to safeguard against risks to your reputation and how to protect your business from illegal activity.

Ensuring safe transportation

International Commercial Terms (Incoterms®) are commonly used for international shipments of goods to ensure clarity over:

• which party is responsible for the cost of transporting the goods
• where the goods should be picked up from and transported to
• who is responsible for the goods at each step during transportation

Whether you are importing or exporting, it pays to make sure your trade partner fully understands the Incoterms® rules applicable to your transaction. As well as helping you to avoid costly oversights and any reputational consequences of shipments or payments being delayed, this is also helpful in strengthening your trading relationships.

Modes of transport

The majority of international trade tends to be via sea and is very different from domestic road haulage in terms of reasons for loss/damage/delay. Despite its usually lower cost, it may not necessarily be the most appropriate method of transport in terms of speed. A regular review of transport methods can pay dividends when making shipments.

Know who is moving your goods and where

Using a reputable firm of international freight forwarders will maximise the likelihood of trouble-free international trade. They will also advise on a country's position in relation to trade sanctions and embargoes. Be aware that banks are required to screen for sanctioned countries and will stop any transaction where a ship has called at a sanctioned port – even if your goods have not left the ship.

Importer behaviour

If an importer fails to accept delivery punctually or does not return a container empty within the specified period, an exporter may be liable for additional charges from the shipper. Insurance can clearly play an important role here. However, exporters still need to factor in the associated business and cash flow disruption in the event of a loss, and the cost of making a claim.

Safeguarding against financial crime and sanctions

Money laundering, bribery and sanctions are issues you'll have to be alert to when trading in certain countries around the world. This section tells you what to look out for and how to avoid getting involved accidentally.

Bribery

The possibility of bribery arising is not always obvious. For example, paying a facilitation fee to or enjoying hospitality from a trading partner could be construed as bribery in countries with robust bribery and corruption laws. Breaking these laws through the behaviour of your employees overseas could make you liable to prosecution at home.

Sanctions and trade embargoes

Businesses have a legal obligation to comply with trade embargoes and sanctions so do check whether your goods and/or trade partners are on a restricted list. Ignorance of sanctions is no defence and inadvertent breaches can have severe consequences – the company may face significant fines and reputational damage and personnel could even face prison sentences.

Money laundering

With the rise of online trading, money laundering is also on the increase and payments to or from certain countries carry a higher potential for links to financial crime. Businesses trading overseas need to be vigilant to make sure they don't become unwitting participants. If a deal looks too good to be true, consider whether there's a risk of you becoming involved in a criminal offence involved.