3 common mistakes that cause international businesses to fail – and how to avoid them


common international business mistakes represented by a hammer with bent nails in a board

Running a business comes with a lot of different terrain – fresh challenges, new successes, and both the big and small things that make a company what it is.

While every business is unique, taking inventory of what worked for other successful enterprises, and what didn’t, can help you keep your business on the right track and even boost it to the next level of profitability, growth, and customer approval ratings.

Keep in mind: learning from mistakes doesn’t just apply to our personal lives.

Let’s take a look at common mistakes international businesses make, and how trade finance can relieve some of the financial stresses that come with the territory of being an entrepreneur:

1. Poor cash flow management, the #1 reason small businesses fail

So many parts of running a business rely on a healthy cash flow. Working capital is not only used to cover everyday expenses like payroll and electricity, but it is also needed to pursue bigger plans like growth and expansion into new markets.

There are a couple of factors that can impair cash flow, however, leaving a company with a lower reserve of liquidity than it would like.

In fact, according to a report from Jessie Hagen, previously of US bank, 82% of failed small and medium-sized businesses went under due to poor cash flow management.

Too much growth, too little capital

Growing too much, too quickly, in some cases, can actually be detrimental for a business. Rapid growth may have the adverse effect of drying up cash and might ultimately send a business hurling towards bankruptcy.

This, in fact, happened to the ice cream brand Ample Hills, based in Brooklyn, New York. The company grew from a single local scoop shop to having a footprint of 17 stores nationwide, links with Disney, a presence in grocery retail outlets, and a stamp of approval from Oprah Winfrey, according to the New York Times. Though this brand never ended up expanding overseas, rapid growth without the right support can hurt businesses trading internationally just the same.

Brian Smith, Ample’s co-founder, revealed to the Times, “We made every mistake it is possible to make.”

This included an ill-placed location in Los Angeles and switching up packaging from a traditional round container to a square one. Even with the Ample Hills brand skyrocketing to success, decisions like these ultimately sapped the company’s cash.

Trading with long payment terms in place without the right oversight and support

While the demands of rapid growth may be one culprit for leaving a company cash-strapped, long payment terms with buyers can also drain a company’s liquidity if not managed correctly.

Today, many commercial transactions occur on open account terms, which means buyers are allowed to pay their bills months after an invoice is generated.

Recent data shows that large U.S. buyers take an average of 54.7 days to pay their invoices.

While giving customers the freedom to pay later can help a business win and retain orders, a company must be vigilant of the cash gap that can occur with such terms in place. Many businesses may find themselves needing to pay their vendors upfront, while still waiting on payment for their sales.

Without a keen awareness of the overlap in outgoing and incoming payments, cash flow might be jeopardized.

2. Selling domestically or internationally without having the demand needed to succeed

It can be the aspiration of many growing companies to expand domestically, or even enter new markets abroad. But without the demand overseas or at home, your product may turn out to be a flop.

According to a recent Forbes article titled “Small Business Statistics of 2024”, inadequate market demand is the second most common culprit for business failure.

Inadequate market demand is the second most common culprit for business failure.

“For a small business to be successful, it’s imperative not only to have adequate capital to sustain operations in the early stages but also to ensure there is a consistent and growing demand for its products or services,” the article states.

Given this common mistake, it’s imperative to conduct sufficient due diligence before launching a new product or service. A business must take the necessary steps, like conducting a market gap analysis and gaining a full grasp of the demographics they’re trying to reach, in order to set itself up for success.

3. Skipping credit protection

As we’ve seen in the past couple of years, several big-box retailers have gone out of business. These famously include Bed Bath & Beyond, Christmas Tree Shop, and Lord & Taylor.

When doing business with these large buyers, credit protection can come in handy if bankruptcy is looming for the retailer.

It’s not always easy to predict if a retailer will shutter, but the pandemic taught us that large brands can go bankrupt, and if they don’t fully collapse, then they can still be tardy on their payments to suppliers or skip paying them completely.

How trade finance can help businesses stay the course

Trade finance is a tool that can help businesses better manage their cash flow, reduce trade risk, and accelerate their growth, among other things. Companies of all sizes can take advantage of this financial resource, but small and medium-sized enterprises are especially known to benefit, since traditional banks may require them to meet stricter borrowing criteria.

If a business opts to use trade finance services, here’s how it works:

A financial intermediary will purchase their unpaid invoices and will provide them cash upfront in exchange. This sum of cash will equal up to 95% of the invoice amount.

By receiving this cash advance on the payment they are owed, a business can pay their own supplier on time, or on an earlier schedule. Retailers and other buyers can still enjoy longer windows to pay their invoices since the financial intermediary is able to close the payment gap.

What’s more, trade finance also includes credit protection and collections services.

This means that a business is guaranteed to get paid even in the case of buyer insolvency, as the financial intermediary absorbs the risk in this case and will ensure the business gets paid.

Since running a business requires a lot of focus on marketing, R&D, and customer service, accounts receivable management that comes as part of trade finance packages can take the burden of collecting payment from customers off the business.

The Upshot

Operating a business has its challenges, but it also comes with many rewards. Paying attention to the mistakes that other businesses have made can certainly protect a company from falling into the same pattern.

To get a better handle on cash flow, secure an extra layer of security, and get more freedom to focus on running core business activities, a company can consider trade finance as a solution that can clear hurdles and pave the way for success.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Catherine Alvino

Catherine Alvino is a Marketing Manager at Tradewind Finance, an international trade finance firm specializing in non-recourse export factoring and supply chain finance solutions. She received her Master’s in Business Administration from Iona University in New York state and has spent most of her career working in and around New York City.

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