Is it time for your small business to sell products internationally?

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Is it time to sell your products and services internationally?

The Census Bureau reports that the United States’ exports totaled $2.5 trillion in 2018, the highest on record. Ecommerce and other technology tools make it easier to find international customers, sell a product and get that product in the customer’s hands.

Growing your sales and profits is great, but you need a reliable system to get paid.

Before you take the leap and expand overseas, think carefully about the customer experience.

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The customer journey

WalletHub’s 2019 Small Business survey found that acquiring customers is the biggest frustration for business owners.

To find customers and develop repeat business, you have to create an efficient buying process that is easy to understand. If you don’t, customers will quickly go someplace else.

The evidence is clear:

  • The 2017 American Express Customer Service Barometer reports that: “More than half of Americans have scrapped a planned purchase or transaction because of bad service.”
  • American Express also notes that: “33% of Americans say they’ll consider switching companies after just a single instance of poor service.”
  • This Salesforce study found that 74% of customers are likely to switch brands if they find the purchasing process too difficult.

Customers want a website that is easy to navigate, and ecommerce tools that make online checkout fast and painless. You need to get your product or service delivered in a timely manner, and provide a support team to resolve problems.

A smooth customer journey will help you build a client base internationally. The next step is to consider your options for receiving payments.

Assess payment options

How will you process payments?

The answer depends on customer preferences in your target markets.

As of 2017, the four biggest US export markets were Canada, Mexico, China and the United Kingdom. Customer preferences in these markets can be very different. In China, for example, there are more people with mobile phones than active bank accounts. Businesses selling to the Chinese market must take this fact into account.

PayPal reports that 57% of international payments in the Netherlands are by direct debit, while 26% of customers in the Czech Republic pay using a bank transfer.

It’s also helpful to know when customers in your market tend to buy more products and services. The French have a summer sales period from June 27th to August 7th, and exporters must include this information in their marketing and finance plans.

Once you understand the customer preferences for overseas payments, you can review payment solutions in detail.

Expanding your business internationally

Expanding your business overseas impacts your payments process. For example, if you expand your business into Europe, you and your accountant must consider a number of options for accepting payments.

PayPal PassPort

You can accept payments for international transactions using PayPal PassPort.

The app will accept payments from over 200 markets using 25 different currencies. A small business can accept credit card and debit card payments using PayPal.

To process a payment for a bike customer in France, you can follow these steps:

  • Sales price: Your website and marketing materials lists the sales price for each bike in Euros, which is the local currency in France.
  • Payment processing: Your website includes payment buttons to simplify payment processing. Let’s assume that a French customer pays 1,000 Euro for a bike using a debit card.
  • Currency conversion: Your business pays a conversion fee to convert Euros into US dollars, based on current exchange rates.
  • Transfer to bank account: You then transmit US dollars from PayPal to your bank account.

Your PayPal transactions can be imported into QuickBooks, so you can post the accounting activity quickly and avoid manual entries.

PayPal charges transaction fees, as well as additional fees to convert foreign currency into US dollars. Many overseas customers are familiar with the PayPal brand, and brand awareness increases the customer’s trust level with your firm.

Other payment gateways

PayPal may be the best-known payment gateway. The software authorizes and processes payments for customers using a merchant account.

Some small business owners set up merchant accounts directly with a bank. The merchant account allows a company to accept credit card and debit card payments from customers.

Consider setting up a merchant account with your local bank. After comparing the monthly fee and transaction fees with the cost of using PayPal, you may decide that the convenience of PayPal justifies the slightly higher fees that your business must pay.

Payment gateways also help you to easily process chargebacks. If you need to refund a payment to a customer, you can process a chargeback electronically. Customers often get frustrated when they’re owed a refund, and payment gateways speed up the refund process.

Other payment methods are less efficient.

International wire transfers

A wire transfer uses a set of instructions to move funds from one bank to another. If an international customer wants to use this method of payment, both you and the customer must provide banking information.

Wire transfers require a SWIFT code, which is a unique identifier for a particular bank. ABA numbers are also needed to identify a bank in the US. Finally, both parties must provide bank account numbers.

If you sell products and services in large dollar amounts, an overseas customer may insist that the payment is processed using a wire transfer.

Some customers continue to use money orders to pay for services.

International money orders

In the US, grocery and convenience stores are service providers for sending money orders. The sender shows up with cash, and completes a form to send the funds to a specific location. The store accepts the cash, transmits the funds and provides both parties with a tracking number.

In some countries, money orders continue to be used for purchases.

Cash on delivery (C.O.D)

Finally, a number of international customers may want to pay cash on delivery.

A delivery company, such as FedEx, will collect payment from the buyer when goods are delivered. The seller determines how much money is due and the form of payment collected by the courier (personal check, money order, etc.).

The delivery company acts as the payment processor, and you receive funds after the goods are delivered.

Every small business owner must understand foreign currencies and how currency risk impacts doing business overseas.

Understanding currency risk

Currency risk is the risk that you’ll receive less than the sale price of your product, due to a change in currency exchange rates.

Here’s an example:

  • Say you price a women’s mountain bike at 1,000 Euro on August 1st. The current exchange rate allows you to convert 1,000 Euros into $1,100 US dollars.
  • You then sell a bike for 1,000 Euro on August 25th. The exchange rate has changed, and 1,000 Euro now converts into $1,020 US dollars.
  • When you convert the Euros into US dollars on August 25th, the company loses $80 ($1,100 – $1,020) on the conversion.

Changes in foreign currency rates can also benefit your business. It’s certainly possible for the value of the dollar to increase, when compared to the Euro.

Business owners must be aware that changes in currency rates can increase the cost of doing business internationally. Talk with your banker and accountant about this complex issue, and how you can minimize the impact.

The logistics of delivering your product are just as important as processing the customer’s payment.

Working through logistics

When you do business overseas, getting a product from point A to point B can be a challenge.

Before you start making sales, talk with an attorney who specializes in export law. All countries require you to complete paperwork before you conduct business. Here are some other logistical issues that you must address:

HS numbers

HS numbers identify the product you’re selling overseas.

Your goods must pass through customs, so that the goods are approved for receipt. Customs officials determine the duties and taxes owed, based on HS numbers.

Make sure that you know the HS number for each product that you sell.

Commercial invoice

commercial invoice is required for each international shipment. This document is also used to confirm the goods shipped, the value of the goods, and any duties and taxes owed.

The invoice describes the goods, where the goods were produced and how they will be used. The buyer uses the document to prove ownership and take possession of the goods.

Taxes and duties

You may owe taxes on the goods you ship. Many countries impose a value-added tax (VAT) on all business transactions. The terms “duty,”, “tariff, and “tax” are similar, so make sure that you clearly understand the cost incurred on your shipments.

The decision to expand overseas can feel overwhelming and you may not know where to start.

What to do next

Do your market research and decide on your target market.

You decided to expand into Europe because your products fill a need in the marketplace. Your research will help you determine the size of the need—in units sold and sales dollars generated.

Do your homework

Write a comprehensive business plan for your expansion. If you conclude that the sales and profits justify your time and expenses, move forward.

Talk with business peers and find contacts that already do business in your target market. Ask them about their experiences, and how they solved the payment and logistical problems.

Try an experiment

Many firms start internationally by selling a product through a company based in the new market. Your business, for example, may decide to sell your branded bikes through a French sporting goods company.

If the bikes sell well, you can set up your own operation in France. If sales don’t meet expectations, you can experiment with product changes and sales price adjustments. The longer you sell bikes through a vendor, the more market research you can uncover.

Dig into the details

If your target market shows promise, start working on the payment processing issue. Consider your customer preferences and the costs of each method.

Once you decide on a method, you’ll need to educate your customers by adding instructions on your website and in your marketing materials.

Work with an attorney and create a plan to manage the logistics of shipping your product. Complete all required paperwork and pay the necessary duties, tariffs and taxes on each shipment.

When you do business overseas, you may have shipments that are delayed, due to issues with customs. Your attorney can help you resolve customs issues and get your goods into the country.

Carry sufficient inventory to fill customer orders, in case a shipment is delayed. You’ll have to spend more dollars on inventory, but you’ll limit the risk of losing a sale due to an inventory shortage.

Competitive advantage

As you do more business overseas, the process will get easier.

Over time, you’ll learn about customer preferences, and the logistics problems will be easier to solve. Eventually, you’ll have a big competitive advantage over businesses that are just starting the process.

Investing the time in planning your international expansion can help you grow sales and profits with confidence.

This article was produced by the QuickBooks Resource Center and syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.

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