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New EU Member States - South West Companies Warned To Do Their Homework
LLOYDS TSB Commercial Finance is urging South West businesses to proceed with caution if they are looking to break into new European markets for the first time.
James Cullen, regional director with Lloyds TSB Commercial Finance, says many local companies will be eyeing the opportunities opened up by the membership of ten new EU states: Cyprus, Malta, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia.
"UK firms are right to look for new opportunities, but they must do their homework first," says Mr Cullen.
"It's great to find new trading partners and to get deals signed, sealed and delivered, but only if it translates into hard cash within an acceptable timescale.
"While it's exciting to be offered a huge contract, always think about what would happen to your company if you deliver, but the money fails to materialise. Don't put your business at risk - it might be worth testing the water first with a smaller order and then gradually building on the trust and relationship that develops from there".
Mr Cullen said it is relatively easy to obtain information about what to expect in established European markets because important facts such as average payment terms, whether to expect delays, standard contracts and trading practices are well known and documented.
But he says some of the new EU member states are "uncharted territory" and that UK firms should therefore safeguard themselves as much as possible by considering the following:
Seek advice from UK credit agencies that have already established relationships with local credit agencies in the new member states, and whose reports are considered reliable. While obviously no guarantee, it makes sense to be as sure as possible who you are trading with and whether you are likely to be paid or not
Local currency accounts are available through British banks for the Czech Republic, Hungary, Poland, Malta and Cyprus. For the other countries, UK companies will need to invoice in a different currency, preferably sterling, euros or US dollars. Companies will need to bear in mind that the price agreed may end up being different from the price finally paid because of exchange rate fluctuations
Obtaining export finance in order to trade in these emerging markets could also be more difficult, as many finance providers will be put off by the greater credit risk. Again, as trading becomes established, this should settle down, as the risk becomes more acceptable to lenders. But in the meanwhile pioneers could look at newer forms of finance, such as asset based lending, which links finance with the assets in a business and therefore is not so swayed by perceived 'risk'
Cyprus and Malta are both countries with established trading links with the UK. There's also the added comfort of being able to set up a local currency account with a British bank. Cyprus in particular has a strong British legacy in terms of its legal system, and neither country should present problems with language
Some UK companies have already established links with Poland, the Czech Republic and Hungary, but the remaining Central and Eastern European states are still very unfamiliar to the UK, and offer very different attitudes to trading rights and law. Therefore don't expect EU law to offer complete protection, but wherever possible do try to engage a lawyer well-versed in EU law
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
