Around six months ago, the board of SMEunited, the Brussels-based coalition of more than 60 European SME and crafts associations, gathered to discuss the impact of geopolitical tensions on the continent’s small and medium-sized firms.

Following its meeting, the board issued a statement acknowledging the growing complexity of global trade relations and the escalating tensions between major economies. In particular, the board said: “The imposition of tariffs and trade restrictions is raising costs for SMEs, limiting access to essential raw materials and complicating export opportunities.”

Against that backdrop, SMEunited President Petri Salminen said: “Policymakers must ensure that businesses can navigate global uncertainties without being weighed down by excessive costs and trade barriers.”

Months later, the complexities facing SMEs – not just in Europe, but the UK, too – are only mounting. And one area where they are having a detrimental effect on the operations of businesses that are seeking to harness international markets is customs compliance.

Basket of tensions

For thoughts on the challenging climate that SMEs are facing on this front, a senior economist at a leading business lender says that a lot of it ties in with SMEs concerns around the paperwork associated with trade, and being able to access the information they need to comply with complex international trade rules.

Brexit, they point out, has exacerbated those challenges by making a once openly accessible bloc harder to navigate, putting pressure on fledgling UK exporters who are still more likely to establish a presence in Europe before any other territory, for reasons of proximity.

Overarching this is the whole issue of having the correct personnel in the office who can deal with the process. “It’s quite likely that very small SMEs, with just a handful of employees, don’t know where to look. If they’ve had a purely domestic focus since they were set up, going international is bound to be a daunting experience. You will face language barriers before you even get to whether or not your goods comply with regulations, depending on what you’re supplying, and to whom. And certainly, any shipments related to food or medicine will come under intense scrutiny.

“Amid those unknowns, you will be naturally concerned that you’re not doing something you could be fined for.”

In many ways, customs compliance is just one facet of the numerous risk factors that UK SMEs are grappling with in the volatile global context. While the economist puts tariffs squarely in the ‘geopolitical tensions basket,’ they are accompanied by other bear traps in the form of fraud and cybercrime. “Fraud is a very real issue in the current climate, especially for SMEs, and with artificial intelligence and deepfake capabilities, cyber attacks are becoming harder and harder to spot. That directly impacts on compliance, particularly when you consider the flow of invoices and other documents. How can you make sure that the person who signs off on them knows that they are safe?”

With those sorts of risks in mind, UK businesses will be thinking about how to switch up their supply chains to limit their reliance on countries that have become sources of tension. “That does inevitably come with a cost, because you’re not going to be as efficient as you could be. But then again, you’ve bought yourself some extra resilience. So, if another shock comes along, you will be prepared.”

Compliance through controls

The whole risk management piece is critical for SMEs’ survival, but the smaller the firm, the tougher the nut it is to crack.

“The cyber attacks that have plagued the likes of Marks & Spencer, the Co-op and Jaguar Land Rover this year vividly illustrate what happens when some of the UK’s biggest companies are targeted,” the economist says. “That would be even more severe for SMEs because, in the majority of cases, they won’t have the depth and resources they need to keep themselves going while they try to fix the problem.”

As such, alongside cyber and other risk factors, the economist urges SMEs to include all their measures to align with customs and other trade rules within their control environment.

“If you are trading internationally, you must put in place even more controls to ensure that you are compliant. Your entire control environment is very important, and you will need to review it quite regularly.”

As an SME grows, it’s essential for owners to ask what sorts of controls they need at each growth stage and how they implement them. “It’s so easy to grow with such speed that you end up ripping apart your own control environment.”

Indeed, the most dangerous thing an SME owner could do in the trade compliance arena is stick their head in the sand and think that nothing will happen to them. “Compliance issues and the risks attached to them aren’t about to go away. In fact, they are likely to get more and more challenging in the next few years.”