Tag Archives: #latepayments

Covid 19 the Big One and good Cash management

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Covid 19 the Big One and good Cash management. The Big One is the name given to the earthquake which should one day engulf California if the forecasts of the seismologists are realized. In economic matters, the first half of 2020 probably has the status of Big One. An unprecedented global economic crisis that will take a significant toll financially. The slow emergence of containment that is emerging will put Cash at the center of business concerns. Neither profitability, nor productivity, nor the development of turnover will save companies, it will be Cash.

Approaching this subject with tools before the Covid 19 crisis is a mistake.

All indicators are broken and inaccurate; payment incidents are no longer recorded by the Banque de France, balance sheets are not closed, tax deadlines are postponed, social charges are not paid and payment behaviour is modified due to cash loans guaranteed by the State. However, all analyses, databases and decision-making tools are based on these indicators which will be at least inaccurate for several months.

For everyone, suppliers, customers and consumers, it is essential that economic activity restart. Questions will then arise relating to late payments and supplier credit limits to be set up for new deliveries. It is customer supplier relationships that will have to be reinvented to ensure that all economic players have a sufficient mattress of Cash to overcome this crisis, and those that should follow, according to some experts.

After the end of the lockdown the solution will not be to jump to the throat of customers who are late in their payments. We must invent a new partnership based on new deadlines and means of payment. Suppliers will have to support their customers by delivering goods on credit, customers will have to agree to pay on a regular basis even if they spread their payments differently. To date, the regulatory deadline for paying invoices is 60 days with a large due date. At the end of the lockdown it would be useful to extend the time allowed from 30 to 60 days but by establishing, for example, partial regulations every 2 weeks. It would be a “win / win” solution where the supplier anticipates part of their cash flow and the customer finances their purchases in a smooth and spread out manner. A real dialogue will have to be engaged between supplier and customer to weave a regular and trusting relationship.

Companies after the lockdown will have to focus on their core business, the production or purchase of products as well as their marketing. It has never been so useful to outsource Cash Management which consumes time and resources when done in-house. And this is one of the reasons why some companies are abandoning this approach, which is essential if they want to survive the troubled times ahead.

B to C debt collection costs in France a nightmarish situation when debtor is an individual.

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B to C debt collection costs in France a nightmarish situation. The B to C debt collection costs in France were the subject of a new judicial decision dated September 26, 2019. This decision concerns the collection costs charged to individuals by the collection agencies. The decision of the Administrative Court is as follows. The collection of damages from the debtor must, except to qualify as deceptive marketing practices, be preceded by a justification of the nature and amount of the damage alleged. According to the judges the only fact for the administration to note that neither the proof of bad faith, nor that of the reality and the quantum of the damage, were reported, was sufficient to reclassify the damages and interests in debt collection costs constituting deceptive marketing practices. The burden of proof of the bad faith of the debtor and the loss suffered is on the creditor. Failing this, the collection firm is exposed to heavy criminal penalties for deceptive marketing practices. The context of this decision is related to the practices of some French recovery firms that try to make debtors pay damages by referring to Article 1231-6 of the Civil Code. The root of the problem is related to the small amount of the claims in the B to C files. To make their actions profitable some collection firms do not hesitate to claim substantial damages from the debtors to cover the debt collection costs incurred. The Court’s decision confirms that in practice and for debtors with a private person status, it is in fact impossible to claim recovery costs except to risk very heavy penalties. How to produce receipts for debts of a few tens of euros. And it is equally true that not paying small bills for an individual is a real lawless area, the debtor not in fact risk anything to pay his bills when he sings, if he decides to pay. No one is going to expose the debt collection costs of proceedings for a claim of a few tens of euros.

Business failures in France

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Business failures in France. It’s an encouraging signal for the French economy: French companies are less likely to experience Business failures. Their number was 10,500 in the third quarter of 2019, according to the count made by the company Altares, down 6.4% compared to the same period last year.

This is an exceptionally low level, unmatched since 2007. The improvement is notable in construction, retail, catering and personal services. Even sectors such as business services and industry – particularly agribusiness – are experiencing a decline in Business failures.

Increase in claims of large Companies

All is not rosy however, since the average size of the failing companies increases. Thus, 73 companies with more than 50 employees went to court in the third quarter for Business failures, against 56 at the same time last year. As a result, the number of jobs threatened by these Business failures is growing. Nearly 37,300 jobs are at risk, 2,350 more than in the summer of 2018. These Companies alone account for nearly one third of jobs at risk.

“It has been several quarters since the Business failures of large Companies increase quite markedly,” said Thierry Millon, director of studies of the company Altares. Children’s clothing stores Orchestra, the airlines eagle Azur and XL Airways suffered disappointments last quarter.

Threats in the fourth quarter

Why are some large Companies experiencing more Business failures than before? “The activity has been pretty good since the end of 2015, but some companies have used their money to manage their working capital needs and not to solidify their growth. Today, with the slowdown, they are in financial difficulties, “says the expert who also notes” a degradation of payment behaviour since the spring. ” Vigilance is therefore in order. With a particular focus on the fourth quarter, marked last year by increased difficulties for some businesses and in the restoration because of the movement of “yellow vests”. However, this winter, the public transport strike on the pension reform is threatening.

Signs of weakness in the automobile and construction

Without large-scale social movement, “this year, the number of Business failures should be around 53,000, down from 2018 when France had experienced 54,700 Business failures, according to Thierry Millon. Again, this would be the lowest level since 2007. Even if it should remain low next year, the loss ratio will however hard to maintain at this low water level next year. “Some sectors are showing obvious signs of weakness. This is the case of the automobile or construction for example, “said the leader of Altares. On the other hand, companies should be able to count on the expected healthy performance of household consumption.

Secret information from a debt collection company.

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The secret information of a debt collection company is a first-rate tool for assessing and analysing the solvency of a company. The proof of this is the example of a large company with over € 20,000,000 turnover whose accounts are supervised and validated by an auditor, and which enjoys a good credit rating with the rating agencies. This company filed for bankruptcy overnight. How could the credit rating agencies validating the solvency of the company be so wrong? Why has the auditor not been alerted?

In reality, this company used a large number of foreign subcontractors and did not pay their invoices changing supplier on multiple occasions, as unpaid foreign suppliers were reluctant to act because of the relative modesty of their claims.

The unpaid invoice files against this company have accumulated with a debt collection company specializing in international debts. The latter immediately suspected serious difficulties when it became impossible to reach anyone in the accounting department. Small instalments were paid irregularly. A payment order for a small fee was contested by the company’s lawyer without any indication of any reason. You did not have to be a top-flight financial analyst to understand that this company was in fact terminating payments. Judicial action for a few thousand euros caused the filing for Bankruptcy.

Another example of a well-hidden secret is the following. The subsidiary of a large group contacts a debt collection company. She wishes to entrust him with the recovery of all his 6-digit client account. As this is a company specializing in B to B services, the customer post is the main or only asset of this company. It turns out during the processes initiated by the debt collection company that most of these claims were disputed, that the disputes were serious and the position of the creditor company legally fragile. In fact, the sole purpose of the creditor was to defend the client item vis-à-vis its auditor by acting with a debt collection company to avoid a massive depreciation of this asset.

The debt collection companies so decried and vilified would have a role to play in the prevention of the difficulties of the companies by having for example a right of information strictly confidential of the organs of control to prevent before it is too late to cure.

Commercial Debt Collection and Business Bankruptcy

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Commercial Debt Collection and business bankruptcy are sometimes linked. When a file arrives in a debt collection office, when the amount of the debt recovery is high and the debtor’s situation is fragile the debt collection actions sometimes lead to the bankruptcy of the debtor company. One can therefore ask the question of the relevance of the action of the debt collection company. In reality it is not the recovery actions that led to the bankruptcy of the company it was certainly already in a state of cessation of payment. The recovery procedures are only the drops of water that broke the camel’s back. The bankruptcy procedures are mostly long and dead-end, the creditor said unsecured (the one who has no security) having very little chance of recovering what is due to him. Should we in these cases renounce recovery actions? the answer is clearly no because only the one who acts keeps a chance to get his bills paid. One of the most common prevention tips was to tell suppliers to learn about the creditworthiness of their customers and keep their credit limit under supervision. This common-sense rule now faces new difficulties. Indeed, the secret of business in a world in full transparency becomes more and more opaque. In France, for example, it is now possible for small and medium-sized businesses to make their balance sheets confidential, whereas a few years ago this was considered a crime that could be prosecuted by the public prosecutor’s office. It is no longer uncommon to see companies that are well-rated by intelligence companies suddenly go bankrupt. One of the remedies to business bankruptcy losses is to adjust the credit limit to the size of the client. It is common to see the debt collection of important files that concern very small businesses. When a company is in trouble it will rush into the arms of a supplier ready to give it credit. The salesperson will be enthusiastic about developing his turnover and everyone will fall into the trap of supplier credit. It is the exporting companies that are setting up in a new country that are most likely to fall into this kind of trap. The losses and debt collection difficulties are in fact linked to the short-term profit policy which penalizes the exporters who have not planned a moderate development and supported by a substantial budget.

The return of late payments in France

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The return of late payments in France is confirmed. A few months ago, a large majority of business customers returned their payment means quickly or executed their transfers on time. This is no longer the case and credit managers are seeing an upsurge in late payments. It is currently necessary to invest a lot of time in the raises to keep the treasuries afloat. Whether the company is profitable or not a solid cash is an essential element to its sustainability.

Good repo management consumes a lot of time, and this thankless but indispensable work does not always fit into the planning of the accounting and financial teams. To master payment late payments one of the keys is not to leave the payments initiative to the debtor. A tool that should be used en masse is the electronic letter of exchange raised called LCR. Easy to use it allows to present at the due date an electronic transaction to the customer’s bank account. This requires of course that the commercial team obtains when opening the account of each client a bank account or IBAN complete.

Entrusting late payments to salespeople is a mistake. There is a real loss of credibility to one day aggressively claim a payment and then come back to try to get a new order. Late payments must be handled by the credit managers or by the accounting and financial departments.

Avoiding late payments is a matter of educating customers. If the customer finds a laxity of his supplier he will not miss to take advantage of this free credit and without guarantee that this one grants him. The supplier customer relationship must be a partnership with benefits for both parties; if the supplier has delivered an irreproachable merchandise on time, his customer must avoid any late payment and pay his bills in due time.appointment-15979__340