Mismanagement of cash is the primary reason for bankruptcy for businesses, regardless of size: a quarter of business failures are due to late payments, a problem that, once solved, could yield 15 billions of euros to companies. They remain poorly informed of the procedures to be followed in case of non-compliance with payment deadlines by their customers. According to Jean-Hervé Lorenzi, “In 2014, 20,000 SME failures are due to cash flow difficulties “.
The LME Act of 2008 had capped payment periods to 60 days. In France, by default, an invoice must be paid within 30 days. Despite an average of 12 days in France, some companies pay their suppliers late, which is particularly problematic for SMEs. Unfounded litigation has doubled in three years according to the ARC / Ifop barometer and is a parade that allows bad payers to avoid LME. They reach the rate of 37%, and the annual controls (2500 according to Macron law, including 70 in large companies) will not be enough after Denis Le Bossé, president of the firm ARC. The Warsmann law has established late penalties for bad payers (a lump sum of 40 euros per invoice in compensation for the recovery costs), but SMEs are still reluctant to denounce their bad customers and enforce these sanctions. Probably for fear of losing their clients …
The Hamon law also envisaged making the sanctions public, on the same principle as the American Name and Shame. According to Laurent Vronski, CEO of Ervor, “There is a risk of conflict of interest, it is difficult to ask them to denounce their customers”. Denis Le Bossé shares the same opinion: “79% of companies do not claim stimulus costs. They are in such a balance of power with their customers that they are paralyzed at the idea of inflicting penalties on them “. The Cabinet ARC / Ifop barometer indicates that “88% of companies are reluctant to relaunch their key account customers for fear of losing a market”.
This is why Bercy relies so much on the development of electronic invoicing: indeed, if today only 8% of invoices are electronic in France, the development of this system would allow SMEs to lift the veil on payment deadlines. their customers, in a way that is both computerized and objective, without any threat to the customer relationship. Bercy thus expects a gain of 10 euros on each invoice, and for 53% of suppliers, the dematerialization of invoices would reduce payment times. It would also be an incentive for businesses to pay their customers on time. The survey conducted by CroissancePlus has already publicly unveiled some names of good and bad payers: Renault, Nexity and Vivendi would be in the red, unlike Legrand, Dassault Aviation and Schneider Electric.
This trend towards longer payment terms is not a French specificity. Large groups such as Kellogg’s or Anheuser-Busch wish to pay their customers within three months or even four months in the most extreme cases. Previously, companies that did not meet payment deadlines were in poor financial health. Today, this shortcut is no longer valid. According to Bea Chiem of Standard & Poor’s, “their recent performance has been average, many of these companies are in the midst of restructuring and all are trying to balance their cash needs with their shareholder returns.” Diageo wants to pay its bills in 90 days, and Mondelez, Mars, Kellogg’s and Anheuser-Busch have gone as far as asking for 120 days of payment term.
Professor Narayanan of Harvard Business School fears that this phenomenon will become “a matter of benckmarking”, ie that these elongated payment terms become a norm. In fact, groups that want to maintain a competitive advantage and make investments to ensure their success in the face of competition can not afford to pay cash if their competitors benefit from payment terms of 3 months. Mr. Narayanan denounces this technique to get around the banks: “They [companies] request credit from their suppliers rather than their banks, and for companies that are quite solvent of this size, this is absurd.”
The inter-company credit to which the Macron law refers is a potential solution to this problem, especially since crowdfunding is an international practice that is increasingly practiced. In France, the partnership contract could extend up to two years before companies have to go through a bank.
From the point of view of companies, some rules that are sometimes poorly respected make it possible to control customers’ payment deadlines:
- Make sure that the terms of the contract are explicit, that the customer knows and accepts them, and that the contract is signed between the two parties.
- If the product you supply has a fixed price, you can set up an initial deposit that the customer will pay at the beginning of the contract.
- Check the penalties for late payment and, on the other hand, establish favorable conditions for customers who pay their bills quickly.
- Have a system in Saas mode to relaunch customers and get payment of bills. If the customer has not paid you in time, it is to react as soon as possible. Indeed, a customer who is used to paying late bills will be hard to adjust.
- If your customers are in poor financial health, they will probably choose which providers they will pay on time and which providers they will pay late. Be firm and let your customers know that you will not accept late payments.
- Be sure to relaunch customers and remind them when their bills are due, to anticipate late payments and decrease their frequency.
- Check the company’s bank information on the invoices you send, to prevent litigation or late payment. Similarly, correctly format your invoices.
- Consider acquiring computerized software for your invoices: it will allow you to track all your deadlines and check the payment status of your invoices issued, thanks to which you can revive your late customers.
- Make sure you have a clear company policy: some people have the right to change the terms of the contract, others do not. Faced with the pressure of competition, some people may be inclined to change the terms of payment delays without being responsible. Perform controls and set strict rules regarding longer payment terms.
- Any company has the right to charge interest on late payments: the EU late payment directive of 2013 introduced a legal interest rate of 8 percentage points above the ECB reference rate. It may also claim compensation for any remaining recovery costs.
- Be proactive Send a reminder email at first, then call the client company’s accounting.
- Use a debt collection agency if one or more clients continue to pay their bills late.
In short, mastering the collection of your receivables will allow you to maintain a healthy cash flow and establish a balanced relationship with your customers. Because in the background, a customer who pays is a customer, but a customer who does not pay? A thief?