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GESTION CREDIT EXPERT – FRANCE CREANCES interviewed by latribune.fr as an expert in the management of unpaid debts and debt collection

Christophe NOBILET, Director of GESTION CREDIT EXPERT – FRANCE CREANCES, is the guest of latribune.fr in the program "words of experts" on the management of unpaid debts. In particular, he discusses the consequences of these unpaid bills on the French economy and the solutions available to companies to increase their cash flow and reduce their customer credit risks.

According to theANCR, the leading French debt collection union, 56 billion euros of unpaid bills were written off on the balance sheets of French companies in 2017 (i.e. 2.5% of GDP), knowing that the respect of payment deadlines alone would free up approximately 15 billion Euros of cash for companies.

56 billion in losses is also about 29 billion euros that the state did not collect in its coffers; about 12 billion in VAT and nearly 17 billion in corporate taxes.

Given their average economic profitability of 8% according to INSEE, to compensate for these 56 billion losses, French companies would have to make a colossal effort or show great patience.

They should either :

  • To produce about 700 billion additional, that is more than 30% of the French GDP 2017,
  • wait about 20 years with a growth of 1.2% / year, as at present.

This challenge is simply impossible to meet!

Late payments and unpaid bills are the cause of 25% of business failures in France

A quarter of the 54,000 companies (whose cumulative turnover reached approximately 16.7 billion euros) went bankrupt in 2017 because of late payments, 38,000 jobs were also destroyed 1 . The number of business insolvencies certainly fell by around 6% in France in 2017, but that of ETIs and large groups would have jumped by 64.3% 2 .

Late payments and non-payments are very costly for companies

The real cost of unpaid 3 for the company that suffers it is:

  • in B2B: 600€ per invoice paid late and 1.000€ per unpaid invoice if the cost of the loss is included
  • in B2C: 30€ per late paid invoice and 40€ per unpaid invoice by reincorporating the cost of the passage in losses

All costs are included here:

  • related to the recovery itself (internal time and salaries; external partners and consultants)
  • related to the consequences of not having the expected cash flow (external financing needed; missed opportunities; delay in development plans…)

Initiatives to reduce late payments and non-payments are still insufficient

At the national level, the government has taken a number of good initiatives to reduce payment delays and avoid non-payment:

  • the implementation of credit mediation and the observatory of payment periods,
  • the LME law to provide a stricter framework for payment periods between companies,
  • the implementation of the fixed indemnity in commercial matters (40€ claimed to the professional debtor for each invoice in delay of payment),
  • the strengthened powers of the DGCCRF, particularly in terms of the sanctions it can impose,
  • the ” name & shame ” or ” wall of shame “, i.e. the publication of the names of companies sanctioned for their bad behaviour in paying their suppliers.

However, there is still much work to be done. For example:

  • communicate more about the extremely damaging impact that delinquencies have on our economy, in terms of growth, jobs, taxes, and why these deadlines must be respected. We still don’t do it enough.
  • It is essential to make debtors, both professionals and individuals, more responsible :
    • bad behavior is the main cause of problems related to unpaid bills and must be sanctioned.
    • There is obviously no question of burdening already fragile companies or individuals in difficulty, but these categories are in fact the cause of only 20% of unpaid bills in France.
    • bad payers, both professionals and individuals, have to bear the cost of unpaid debts, especially during the reminder and amicable collection phases.
    • France is one of the few countries in the world where debtors bear so little of the cost of the damage they cause by their late payment.
  • the simplified procedure for the recovery of small claims was a good intention but it does not work, in particular because it was entrusted to the judicial officers whose speciality is rather the forced execution, the judicial ways. The collection of small debts must privilege the amicable way, the negotiation, it is the speciality of the companies of amicable debt collection.
  • to open the market of public debt collection to private companies of amicable debt collection; the collection of public debts is still the monopoly of the judicial officers.

At the corporate level:

  • The means to be deployed depend of course on the size of the company, its sector of activity, the geography of its market, the number and profile of its customers, its growth, its accounts receivable, its indebtedness, its WCR, its development plan…
  • Large companies are aware of the issues and have the means to deal with them; they are organized or in the process of being so.
  • this is much less the case for VSEs, SMEs and ETIs, even though they are the most exposed to the risk of non-payment and have the greatest need for financing and the most difficulty in doing so.

All companies need to be much more aware of the true cost and stakes of non-payment to themselves.

Possible solutions for companies to reduce customer credit risks

Companies may consider internal levers, such as:

  • Define a customer credit policy
  • Have it clearly and explicitly approved by senior management
  • Recruit a competent credit manager if needed
  • Put in place appropriate processes and tools
  • Train teams in the necessary legal and technical areas
  • Clarify their objectives
  • Raise awareness among all functional and operational managers
  • Train the teams directly and indirectly concerned (Sales/Commerce, Logistics/Delivery, Sales Administration, Accounting, Invoicing, etc.)
  • Ensure the relevance and completeness of sales contracts or GTCs, as well as purchase orders, delivery notes, invoices, return slips, etc.
  • Modify certain remuneration methods for the teams concerned, for example for sales representatives who should be paid at least in part on actual cash receipts, and not only on sales or orders taken
  • Shorten dunning times after the due date of the invoice and the time required to outsource amicable or legal collection (recourse to a third party is often a necessary break in the process of dunning)

They may also consider external levers, such as:

  • outsource the specific activities of the ” order-to-cash ” process: optimizing the customer receivables requires various types of expertise that are rarely available within companies (process audit, choice of business tools, drafting of General Terms and Conditions of Sale, collection by amicable or legal means, collection in France or abroad, field financial investigations, etc.)
  • cover all or part of the customer risks by credit insurance contracts
  • financing part of the WCR by factoring the trade receivables

GESTION CREDIT EXPERT, a triple expertise for a global approach to customer risk since 1970

“Our core business is the collection of civil and commercial debts , by amicable or judicial means, both in France and internationally, thanks to our team of lawyers, collection experts who work in 10 languages, as well as our network of 300 partners around the world” , explains Christophe NOBILET. “Our two other businesses are complementary: on the one hand, the surveys used in a preventive way to check the solvency of a customer before selling him anything, or in a curative way to determine the opportunity to launch a legal procedure; and on the other hand consulting and training to support companies on the key topic of improving their working capital.”

1Source Ellisphere, “Business insolvencies, what’s the story for 2017?”

2SourceBanque de France, “Business failures in France, January 2018.”

3Source ANCR, “Delays, unpaid invoices, image, commercial and financial damage: the cost of unpaid invoices, the scourge of the French economy”