Today's post will be very practical: what to do about financing or pricing foreign deals. Whether you are buying or selling, there are always a few things you have to take into account:
Currency
First of all think about which currency you want the deal to be in. Don't assume that you can pay or bill in your own currency all the time. Look at the various charges you may incur for paying in another currency and also at who is taking the risk for currency fluctuations. This may have a huge impact on your profit margins. For example the pound sterling is now worth about 22% less than a few years ago, can you afford to pay that much more or receive that much less money for your goods or services?
Payment terms
Terms will vary hugely depending on the country you are dealing with. Some countries like Spain have a custom of offering 60 or 90 days payment terms, I even had a very large client there once who insisted on 180 days. Do you have that kind of cash flow? Should you charge the other party for the lost interest? In most cases I would factor it into the prices, clients seldomly accept it as an additional charge.
Making the payment
Before sending any money, think about securing the deal for yourself financially. That might mean paying only part of it upfront, or if you are the supplier asking for some or all of the money upfront. There are plenty of financial providers including banks who would love to advise you on the use of letters of credit and other forms of secure payment including HSBC. There are also export credits and other forms of support out there, talk to your local Chamber of Commerce or other non profit business organisation.
VAT
Check the VAT rules for the country you are dealing with or get the other party you are working with to do so. You do not need to do this for each and every deal, but if you are working with a new country for the first time it could be worth it. I used to work for a company that was based in the Channel Islands and we billed a lot of Spanish clients. As there is a part of Spanish tax legislation that forbid dealings with tax paradises, I had a great many clients telling me they would not pay the VAT and would simply deduct 25% off our bills. Seeing as our margin was not even 25%, you can imagine this went down really well with my company....
You can probably write entire books on this topic, but as always this is simply meant to get you in the right frame of mind. I hope you find it useful and if you do, please sign up for this blog and recommend it to others. Have a good day!
Currency
First of all think about which currency you want the deal to be in. Don't assume that you can pay or bill in your own currency all the time. Look at the various charges you may incur for paying in another currency and also at who is taking the risk for currency fluctuations. This may have a huge impact on your profit margins. For example the pound sterling is now worth about 22% less than a few years ago, can you afford to pay that much more or receive that much less money for your goods or services?
Payment terms
Terms will vary hugely depending on the country you are dealing with. Some countries like Spain have a custom of offering 60 or 90 days payment terms, I even had a very large client there once who insisted on 180 days. Do you have that kind of cash flow? Should you charge the other party for the lost interest? In most cases I would factor it into the prices, clients seldomly accept it as an additional charge.
Making the payment
Before sending any money, think about securing the deal for yourself financially. That might mean paying only part of it upfront, or if you are the supplier asking for some or all of the money upfront. There are plenty of financial providers including banks who would love to advise you on the use of letters of credit and other forms of secure payment including HSBC. There are also export credits and other forms of support out there, talk to your local Chamber of Commerce or other non profit business organisation.
VAT
Check the VAT rules for the country you are dealing with or get the other party you are working with to do so. You do not need to do this for each and every deal, but if you are working with a new country for the first time it could be worth it. I used to work for a company that was based in the Channel Islands and we billed a lot of Spanish clients. As there is a part of Spanish tax legislation that forbid dealings with tax paradises, I had a great many clients telling me they would not pay the VAT and would simply deduct 25% off our bills. Seeing as our margin was not even 25%, you can imagine this went down really well with my company....
You can probably write entire books on this topic, but as always this is simply meant to get you in the right frame of mind. I hope you find it useful and if you do, please sign up for this blog and recommend it to others. Have a good day!
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