Mark Harper, the Executive Manager of Business Lending Products at Suncorp, talks about the risks associated with import activities and what to watch out for while navigating the importing minefield.

The strong Aussie dollar has led to a small business revolution, providing new opportunities for local manufacturing and changes in importing and exporting. But many small to medium enterprises (SMEs) engaged in import activities do not understand the full extent of associated risks.

Australian small businesses are no longer solely reliant on importing goods from Asian locales such as China, Japan and Taiwan. Suppliers in Europe and the US, which were previously prohibitively expensive, are now a feasible, and attractive, source of imports.

While this has opened up a whole new world of possibilities for the Australian market, SMEs also need to understand the complexities of importing.

To help SME operators navigate the importing minefield, some of the most common risks and ways to manage them are outlined as follows:

• Exchange rate or currency risk can arise due to variations in exchange rates and the delay between the time of entering into a contract and the making of the payment to the supplier. Mitigants include the use of flexible forward contracts and foreign exchange options to guard against unfavourable movements allowing an importer to lock in the cost of the imported goods.
  
  
• Non-delivery or non-performance by the exporter may arise when a supplier is unable to perform in accordance with the sales contract. Whilst there are no guaranteed methods of eliminating this risk, making enquiries and seeking trade references prior to dealing with new trading partners is a must.
  Importers can limit risks associated with goods not being in accordance with product samples or of a specific quality as per the contract of sale by requesting goods to be inspected by an internationally recognised inspection agency such as SGS.
  Also, make sure a secondary source of goods is always available to limit damage caused by loss of supply.
  
  
• Credit risk is the risk of seller insolvency. If payment is made prior to shipment, the importer may find that payment may not be returned. An Import Letter of Credit is an ideal way to facilitate payment to the supplier with some in-built safeguards.
  
  
• Transport risk is the risk of damage, theft or pilferage of goods whilst in transit from seller to buyer. These risks can be managed or mitigated through commercial cargo insurance agencies or freight forwarders. Whether the goods are being transported by sea, air or other means (road/rail), the risks can be covered by insurance.

The good news is many of the risks associated with importing can be reduced by following the right advice. Your banker can provide expert financial solutions tailored to your individual business and help you realise the many opportunities offered by international trade.