Written by Michael Hatchwell
As we move towards life post-Brexit, we are open for business with the world and on the cusp of reaching out to new territories. To realise the Government’s ambition for ‘UK exports to reach £1 trillion, and for 100,000 more UK companies to be exporting by 2020,’ companies must consider the legal implications of doing business abroad. It is of course unlikely that a Government-stated policy will in itself drive exports, but the prospect of Brexit should certainly be a driving force.
It is therefore critical for businesses to master the methods of exporting successfully.
Local regulations and laws of the target market may impede access to the consumer. Businesses need to ensure that they know of any legal requirements in the target market relating to product standards, or restrictions relating to marketing and labelling of products.
Different markets have different laws and certain products may even be illegal or may require an import licence from the relevant authorities in advance. Obtaining an export licence from the UK authorities may be necessary in some instances.
Protection against risk of non-payment, product liability claims and cover against damage or loss means that insurance should be carefully considered as some jurisdictions impose strict liability.
Knowing your customers will not only help your business but also your finances. No business wants to sell goods without receiving payment so through local research you should be able to identify how your business may optimally interact with different customers. Payment upfront is always preferred but payment by a letter of credit from a reputable bank is also acceptable, although more costly.
The UK Export Finance’s (UKEF) (a government export credit agency) Direct Lending scheme may be a good solution and an opportunity for businesses requiring financial support. It offers a finance scheme which supports overseas buyers and UK exports by providing loans to British exporters. The aim is to allow customers to pay in instalments if there are payment difficulties and so provide financial security. Low interest rates on such loans makes them an attractive alternative to help finance exporting businesses.
It is essential to establish the credit risk of potential customers before doing business with them. Getting local information and feedback from other exporters regarding their experiences of working with your potential customer is useful and relatively cost-free step.
Understanding the location profile of a customer’s assets is important if a transaction goes wrong so as to identify where enforcement of a judgement will be most productive.
Sales contracts must be clear and enforceable in your target market to avoid translation and legal issues. All valuable intellectual property (IP) should be protected by appropriate registrations in the target country to minimise IP infringement risk.
When negotiating sales contracts or terms of business, ensure that you deal with the following:
- Define the goods to be supplied;
- State the price to be paid;
- Be clear about the method of payment;
- State which party takes responsibility for the goods at each stage of delivery including who will pay for insurance and customs duties;
- Include a retention of title clause to ensure that you retain ownership of the goods until you have been paid in full;
- Delineate carefully the rights of the customer to use your IP including trademarks and patents;
- Agree how disputes are to be handled and define jurisdiction;
- Include a force majeure clause to allow you to terminate the contract in the event it becomes impossible to perform;
- Clarify the consequences in the event of faulty goods being delivered or non/late delivery; and
- Provide for an opt-out if Brexit results in uncommercial outcome for the goods and/or the territory you are contracting for and in.
Finally, it is recommended that you specify the party responsible for paying any import taxes and for dealing with importation formalities in the sales contract.
VAT and other forms of sales taxes can be very tricky areas subject to complex rules. Take careful note of relevant import duties such as customs and excise duty, as these vary by country and product type.
Exporting isn’t as daunting as it seems. Use reliable local professionals such as lawyers, accountants and local Chambers of Commerce. Having local knowledge can help you avoid many avoidable pitfalls and will help you to expand into new markets more successfully. You should make use of organisations such as UK Trade & Investment (UKTI) and UKEF, which specialise in supporting overseas trade.
It is important that UK businesses carefully investigate new potential overseas markets for their products and services to reap the financial benefits of exporting abroad.
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