When an invoice remains unpaid, entrepreneurs often underestimate the cost for their firm. The direct consequences on the profit are easy to apprehend. Nonetheless, it is enlightening to take into account the additional margin rate and turnover to undertake in order to erase the loss endured.

In the hereinbelow example we analyse the situation of a company whose annual turnover is 6.000.000€ and supports several outstanding debts for a total of 45.000€.

If its margin rate in relation to its turnover is of 5%, it will have to increase their sales of 900.000€ in order to soak the consequences of these outstanding debts up.

It will be necessary that the commercial team assume a 15% growth of the turnover in order to compensate the endured losses. It is undeniable that this aim/goal will be hard to achieve in a competitive market. Not only these outstanding debts will cause damage to the profit and the financial situation of the firm but also they can displease the sales force.

The process which consists in mandating a debt collection company is made with lots of reluctance:

• The firm is afraid that the client/customer relation will be disturbed

• The cost seems considerable especially in countries like France where it is very difficult to bear the recovery costs to the debtor who isn’t paying his/her invoice.

To call on a debt collection company is like entrusting the management of a staff canteen to the caterer. It becomes essential if we want to focus on our core business, to let the specialists do the tasks which the firm does not necessarily have the internal skills for.

If the invoices to be recovered are sent to the debt collection company in a reasonable period after the outstanding debt’s due date, it is likely that in the hereinabove example, an amount between 25.000 and 30.000€ free of costs can be recovered. Needless to say that it will depend on the file’s quality and the fact that all cannot always be collected.

In most cases, the recourse to a debt collection company will help improve the viability and the treasury of the firm.

Finally, a low loss ratio will enable the company to negotiate a lower rate for its credit insurance bonus insofar as it has subscribed to such agreement.

The since July 2017 available figures are the best ones since 20 years, describing a fast recovery of the French economy. The number of bankruptcies is reduced (- 7.8 %) and the tendency is increasing.

And for the first time small companies between one and ten employees are also facing the same evolution despite the fact that on the end of 2016 and the beginning off 2017 those firms where in a chaotic situation.

More orders and more cash are the actual facts.

And at least the very small businesses with less than 3 employees are also in the same situation the number of bankruptcies was reduced about 6.7 %.

The winners are companies with 50 to 99 employees for those ones the number of the bankruptcies are reduced about 34 %.

This economic recovery will have a positive influence on the unemployment rate.

Today the global wages for private housekeeping are on 2 % progress rate.

Nearly every economic area takes advantage from this evolution:

– The House Building
– The retail shops mainly in the do it yourself area
– The industry for manufactured goods.

397.700 new flats are ordered (+14 %) and the car producing factories are more or less on the top of their capacity.

The Business Manager were never as optimistic since 2011.

One small trick: the French summer hole is also a period where the payment delays are the highest be still careful.

In France the foreclosure for commercial debts is about 5 years.

But they are a lot of other time limits in France that you have to be aware off to secure your payments. It is extremely difficult to get from a judge the skipping of the foreclosure.

You face the risk that your debt is considered as not existent.

If your customer sells his business (goodwill) you have 10 days after the official publication (BODACC) to stop the distribution of the price if you have an unpaid invoice.

This process blocks everything and you are sure to be paid if they are not more unpaid bills as the total amount of the selling price.

If your customer is bankrupt you have 2 months (4 for foreigners) to declare you debt to the receiver.

If you use the very popular injunction procedure you have six months to let the debtor informed via a Bailiff. The debtor can raise opposition within one month and if he doesn’t you have 2 months to ask for the execution.

If the debtor raises opposition you have 15 days to inform the court if you want to go ahead or not with the procedure.

The conclusion is that it’s better and more efficient to manage your open debts in France via professionals as lawyers, debt collection office or bailiff.

The permanent survey of the official publications concerning your customers is also a necessity.

As explained in our previous newsletters the supplier credit is a big issue in France.

For this reason it’s important to have an in house or external credit manager for the management of your French Credit Risk. The way of acting of the Credit manager was for years made under well know rules.

He checked the solvency, surveyed the mean of payment of the debtors, he checked the in house flow( Payment and delivery terms, order, delivery note, invoice etc.) and had an eye on the credit limit starting if necessary debt collection measures. The Credit manager is often in conflict with the sales people more concerned with their turnover goals than with the payment problems.

In 2017 we are in France facing a lot of major evolutions :

– Tsunami in the political scene with the disappearing of the left and right party
– Decrease of the transparency in the business life due of the fact that most of the companies are not obliged any more to publish their balance sheet.
– New rules facilitating the building up of credit between suppliers and customers.
– Due of the development of Internet new start-ups are growing like mushrooms after the rain.
– Consumers modifying their way and habits of purchasing goods and services.

In 2017 a war between credit manager and sales people is impossible.

The customer has to be seen as a partner for the supplier this is the only possibility to have in the future reliable retail organizations. Sales and Credit management have to focus and find out retailers with potential. If the retailer is in trouble the supplier has to support him by example in building up a credit, this kind of prevention is more successful than repression.

This new rules are not applicable for one shot customers.

France has 4 branches with major problems

– The fashion retail with an increase of 17 % of the bankruptcies in 2016
– The transport business (+8 %)
– The Hotels
– The food business (bakeries and butchers)

Geographically the major difficulties are located in Paris and the Parisian suburbs.

The increase of the internet sales is the major reason of those difficulties.

International Debt Collection: does it make any sense to transfer the file to a local specialist?

Wherever the debtor has his head office (in or outside the UE) it will be difficult to collect abroad an unpaid invoice.

The first difficulty is related with the foreign language. In the bookkeeping departments it’s not easy to find people speaking the language of the debtor, and it’s the same in the bookkeeping department of the buyer. Sometimes the particularities are so large that they (bookkeeper’s buyer and seller) never find a way to communicate with efficiency.

It’s Human that those guys don’t consider the foreign debtors as their priority.

The largest problems abroad are related with the court procedures and their execution.

Also in Europe you will find everywhere particularities which are impossible to be brought under control from your local lawyer. Every Country has his own way is a totally correct description of the international payment area.

Only a local specialist has the know-how to support with high efficiency the collection of your unpaid invoices.

Some Examples

– The Bailiff doesn’t exist in Spain how can I execute a verdict there?
– Due to the very high court costs in Switzerland what is he amount from which it’s economically possible to go to Court, to start a litigation procedure?
– Why can the court hearings been postponed for months in last minute before a French court
– How can I check the complicated prescription rules in Italy?
– How to deal with the police in Norway which is in charge of the execution of the verdicts ?
– Why are the appeal procedures in Spain or Greece so long lasting for 2/3 or more years?

The list is very long and the answer clear: only a local specialist gives you all the chances to collect your open debt abroad.

The Payment by check is widely used from French small businesses and from private people.

70 % of the in the EU issued Checks are coming from France.

A French person issues more or less 37 Checks a year

The main reason is that a check payment is easy and very cheap

– The Banks provides Check forms for zero cost
– Issuing a Check is free of charge
– To cash in a check is also free of charge as long as you cash it in on a French bank account.
If the Check is not covered the Bank is obliged to inform within 2 days the French national bank the “Banque de France”, and this has massive negative influence on the solvency of the debtor.

Every French bank has an access tot the Banque de France and can check before any new credit is given, if the customer had or not unpaid checks.

The green light for a credit is nearly impossible to get, if the creditor is registered on this list.

The debtor can avoid the registration on this list if he sends back to his Bank the original of the check form. In case of an unpaid check some debtors call the creditor asking him to send back the check form promising that they will wire the amount of money as soon as the check comes back.

You should never do this; ask for the transfer and then commit yourself to send the check back immediately.

Don’t forget that a check which is unpaid twice is under French law considered as a verdict and with the support of a bailiff and the proof that the check was unpaid two times you can seize the debtor.

In France it’s forbidden for the debt collection companies to charge to private individual’s collections costs.

This was ruled first from the French Supreme Court (Cour de cassation) the 20th of May 2010 for a case where the Debt collection office asked for 9.80 € fees!

Since 2014 there is a law (Loi Hamon) confirming this rule and if a debt collection company don’t respect this rule they will face

– 2 years in jail

– And a fine of 300.000 €

The collection of unpaid invoice’s vs Private individual’s is in France extremely complicated.

If the debtor moved out it will be complicated to find his new address and the search is related with more or less high costs. In every case the best information to find those debtors is the date of birth.

In case of payment delays it’s in the B to C area more important to act very quickly than in the B to B field.

With individual’s in France you should avoid the supplier credit, the payment with check and use only the payment with credit card.

There was an unpaid invoice and after the actions of a debt collection company you could cash in all the unpaid amount and interests plus costs.

The actual Question is: can you still trust to this customer, he is reliable can you again send him goods?

Fact is that a high percentage of the firms paying only after intervention of a collection company, are bankrupt within 12 months.

The percentage is between 20 and 30 %.

If you only check the statistics you will find out that the risk of not payment is 20 to 30 times higher with this kind of customers as with a normal one.

The conclusion is

– Not to deliver your goods or Services to this kind of customer cannot be false but it’s not an obligation.

– One solution is to ask for a down payment of 30 % for the first delivery “after” to check if the problem was an accident or a very serious one.

– To ask for a complete pre-payment is not efficient as long as you are in competition Market.

– But you have to be careful and you have to get extremely fresh solvency information’s about this customer.

– And you should manage this customer in a special reminder organization acting quicker and in a different way than for your other debtors.

For customers who never paid their small invoices, for customers paying only a part of the unpaid invoice, for customers needing a long term moratorium to pay their invoices there is only one solution: forget them.