How Scottish Exporters Can Accelerate Through New Business Relationships – Andy Hodson’s Commentary

Scotland has a rich history of export successes – take the whiskey and salmon industries, for example. However, Brexit and the pandemic have presented challenges for the country’s exporters, with both issues increasing trade barriers between the UK and its international partners. Indeed, the value of Scottish exports fell in 2020 to £26.5 billion, from just under £34 billion in 2019.

While we can point to the pandemic-related losses – representing more than a fifth of the export economy – as being recoverable, it is clear that Brexit presents a greater long-term challenge.

Our analysis indicates that UK exporters are the slowest of the seven major European economies to recover to pre-pandemic levels. The introduction of Brexit-related border controls for imports will cause further disruption in 2022, given the UK’s heavy reliance on imported intermediate goods to supply exports.

Scotland’s export losses are part of a wider £100bn impact on UK exports created by Covid-19 in 2020. We expect it to have seen a £18bn rise in 2021 when official data becomes available in March, followed by £55bn in 2022, and £40bn in 2023. In short, exporters have a lot of catching up to do if they are to achieve their growth ambitions. and achieving the Westminster target of reaching £1 trillion a year of UK exports.

The good news is that new trade agreements are being sought with the aim of recalibrating international relations. While trading in the EU will ultimately be more difficult and more expensive for the foreseeable future, the UK continues to work closely, if not in direct trade agreement, with major key economies. .

For companies that have relied on trade with the EU, this recalibration is likely to create both challenges and opportunities as they tentatively explore new markets. In doing so, and at a time when inflation and supply chain disruptions increase the risk associated with poor business decisions, it is essential that companies are aware of the business cultures of the new markets they are entering and the value of the partners they choose.

An important metric to consider when assessing the health of a new trading partner should be their daily outstanding sales (DSO). This records the average number of days between the completion of sales and the actual receipt of payment. In the UK, the average DSO is 53 days, which is much better than in India (67 days) and China (89 days), but below the 30 days in Sweden and New Zealand.

Keeping a close eye on the DSO of trading partners is crucial for accurate cash flow planning, but it can also provide a useful early indication of a buyer’s faltering finances. If a partner begins to extend their DSO, it’s usually a worrying sign that their cash flow is tight – often a precursor to insolvency.

However, businesses should not be tricked into a false sense of security by prompt payments. It is also beneficial to have a good knowledge and understanding of the legal procedures in a partner’s home country and how they do debt collection.

For example, the commercial gateway to the Middle East – the United Arab Emirates – has a good payment behavior, with a DSO of 30 days. However, if a business becomes insolvent, collecting payments can be tricky.

Insolvent debtors in the UAE face imprisonment. As a result, it is not uncommon for debtors to flee the country, disappear and leave the exporter with a hole in its balance sheet.

Fortunately, there are safety nets for exporting companies if their efforts to recover their debts fail. For example, credit insurance is a tool widely used by exporters to protect themselves against non-payment. An exporter hedges against the value of the goods exchanged so that if he does not receive payment, the exporter is not himself placed in a precarious situation.

With this reduced risk, it gives companies the confidence to trade with partners in less familiar markets, knowing that unpaid invoices – and cash flow impacts – are covered.

In addition to being attentive to the financial performance of companies, it is equally useful to monitor the tensions affecting the whole economy of the country in which the partners are based. Geopolitical instability invariably introduces an element of uncertainty into individual businesses.

If exports are to continue to play a central role in the economy post-Brexit, it is essential that businesses do their due diligence when they start to ramp up their business again. With the right approach, insight and experience, Scottish exporters can capitalize on Britain’s new trading relationships and continue to fly the flag for quality Scottish produce on the world stage.

Andy Hodson, Chief Risk Officer at Euler Hermes UK & Ireland

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