UK SMEs shift trade strategies as geopolitical tensions and cashflow pressures mount

UK SMEs are reshaping their international trading strategies as geopolitical tensions, currency volatility and rising costs place growing pressure on cashflow, according to the latest Trading Places 2026 report from Bibby Financial Services.

The report reveals that overseas trading has become significantly more challenging for small and medium-sized businesses, with seven in 10 firms trading internationally warning they would face a moderate or significant risk of entering administration if geopolitical tensions continue.

“Today, 70% of firms trading overseas say they would be at significant or moderate risk of entering administration if geopolitical tensions persist,” he said.

Cashflow pressures intensify

The report highlights mounting financial strain on UK SMEs as delayed customer payments, higher logistics costs and changing supplier payment terms combine to squeeze liquidity.

Nearly seven in 10 businesses reported worsening cashflow, with 61% citing increased shipping and logistics costs and 42% pointing to delayed invoice payments as key factors.

Currency volatility has emerged as another major challenge. More than half of SMEs have adjusted their foreign exchange strategies in response to market instability, while 44% say exchange rate movements have negatively impacted their profitability. Among affected firms, the average loss attributed to FX fluctuations is estimated at £71,600.

Supply chain pressures are also increasing. More than a quarter (26%) of SMEs have seen a rise in customer insolvencies, while 36% report overseas trading partners requesting upfront payment. Meanwhile, one in five businesses has experienced attempted FX-related fraud during 2026.

Europe overtakes the US as preferred export destination

One of the report’s most notable findings is a significant shift in export markets.

France and Germany have emerged as the leading destinations for UK SME exports, with 36% and 34% of businesses respectively trading into those markets, compared with just 13% for each country last year. By contrast, the United States has slipped to third place, with 29% of SMEs exporting there, down slightly from 30% in 2025.

The change reflects growing concerns around tariffs, complexity and currency risk. More than a third (36%) of SMEs report a reduction in US export turnover following newly imposed tariffs, while 27% have actively reduced their exposure to the American market.

On the import side, China remains the dominant source market, used by 34% of businesses, up from 23% a year earlier. However, nearshoring trends are accelerating, with imports from Germany rising from 12% to 31% and France increasing from 9% to 23%.

Businesses are also diversifying supply chains by sourcing more goods from countries including Canada, India, Japan and Australia in an effort to reduce risk and protect margins.

Geopolitical tensions become the biggest concern

For the first time, global conflicts have overtaken tariffs, inflation and interest rates as the leading macroeconomic concern among importers and exporters.

Almost half (48%) of internationally trading SMEs identified global conflicts as their biggest challenge in 2026, up from 40% a year earlier.

The recent conflict involving Iran and the Middle East has already had a substantial impact, affecting 74% of SMEs surveyed. The most commonly reported consequences include freight and logistics disruption (51%), export restrictions (34%) and higher compliance costs (34%).

Importers reported average losses of £43,209 linked to the disruption, while exporters cited losses averaging £38,929.

Concern over currency volatility has also increased, rising from 25% to 29% among exporters, while Brexit-related concerns edged up from 32% to 34%.

Confidence weakens as growth expectations fall

The report also points to a deterioration in business confidence.

More than a third (38%) of exporters now expect trading volumes to decline over the next year, up from 27% in 2025. Among importers, the proportion expecting lower volumes has nearly doubled from 19% to 36%.

At the same time, the number of exporters reporting sales growth has fallen from 45% last year to 35% in 2026.

Despite the more cautious outlook, many businesses continue to explore opportunities in new markets, with growing interest in countries such as India, Canada and Japan.

Building resilience through diversification

The report concludes that SMEs are adapting to a more volatile trading environment by strengthening credit control processes, implementing structured foreign exchange strategies and seeking more flexible funding solutions.

Many businesses are also diversifying their customer and supplier bases, reducing dependence on individual markets and increasing the number of suppliers they work with. On average, SMEs now use 15 suppliers, up from 13 last year.

BFS said volatility can no longer be viewed as a temporary disruption but has become a permanent feature of international trade. While SMEs continue to demonstrate resilience, the report warns that improved access to finance and a simpler trading environment will be essential if businesses are to sustain growth in the years ahead.