Late payment, the nightmare of SMEs

Late payment, a situation that can affect SMEs. The relationship of a company with its customers, whether they are suppliers or other professionals in Business to Business relationships is sometimes a source of tension. These tensions are linked in particular to payment terms when performing services. The economic ecosystem is constantly changing. In this context, start-ups are the most affected by late payments.

The latter can have an unprecedented impact on their continued operation. The Observatory of Payment Terms and the Banque de France published a report in April 2019. Its objective is to analyze the behavior and evolution of payment terms. It analyzes these data on the French territory in 2018 which concern all professionals in France. Indeed, more than one in two companies in France does not pay their bills on time.

In this context there is an average settlement time approaching 60 days. In addition, the State guarantees sanctions for any exceeding of deadlines. In particular, it sets up administrative fines ranging from €75,000 to €4 million if it is a natural or legal person. On the other hand, the payment is negotiated between the two parties in the professional contract drawn up. A framework for the deadline should be put in place. The latter must appear in particular on the invoice and in the general conditions of sale.

Late payment, an unstable and dangerous balance for small structures

The primary purpose of a company is to be able to generate profits. Indeed, this is the objective of the sale of goods or services in the context of its activity. The company can address individual customers. In addition, it can also turn to professionals for whom it can intervene as a supplier or service provider. Each benefit requested is linked to an invoice that the applicant must pay. Many companies offer payment facilities. In this sense, they want to help their customers to scale payments and avoid cash problems in case of import expenses. However, payment on key dates is not necessarily always respected.

In the logistics sector, for example, the payment deadline is set at 30 days upon receipt of the invoice. In its 2019 study, the Observatory of Payment Terms notes that the average was far from this delay. Indeed, it reaches 57 days, almost twice the authorized period. Of the 2700 logistics establishments put to the test for this study, 25.1% commit payment-related offences. Late payment is not without consequences for companies. In a situation of fragility and instability, in the case of a small structure or a company that does not have a sufficiently large cash flow to ignore pending invoices, can risk bankruptcy.

In France, since 2016, it is estimated that 25% of business bankruptcies are due to late payments from their customers. Indeed, their need for working capital is not sufficient to maintain their activity in the long term. It is then possible to ask why companies do not pay their invoices within the requested time frame. These companies, dubbed “the bad payers” are mostly large groups, especially in the public domain. In the third quarter of 2018, 70% of SMEs honoured the payment of their invoices within a planned period of 60 days. On the other hand, only 46% of large groups respect their contractual commitments.

late payment b to b stakes
Late payments can have irreversible effects

Bordeaux and New Aquitaine, better students?

Since the beginning of 2018, the principle of “Name And Shame” voted and implemented by the Government. This principle is intended to help companies affected and impacted by late payments from their customers. It targets the bad payers with full force. The purpose of the control bodies is to publicly display their names. By following, they apply exemplary sanctions. This is to ensure that these offences do not recur in the future. It also gives companies that are victims of late payments additional support. They are supported to claim their due from their customers.

In Nouvelle-Aquitaine, and more precisely in Bordeaux, bad payers have been singled out and punished. The e-commerce giant Cdiscount has for example been pointed out by the DGCCRF. Indeed, the latter committed constant delays in payment. Thus, he was ordered to pay the sum of € 310,000. On the other hand, the Charente carrier DS Smith Packaging was fined €62,000 for the same reason. Today, the Bordeaux market attracts many entrepreneurs who appreciate the dynamism and opportunities offered by the sector. It concentrates a large number of small structures, nearly 650 “innovative” start-ups in the metropolis alone, including 230 with less than 10 employees.

According to the report issued by the Observatory of Payment Terms, Nouvelle-Aquitaine is among the regions least affected by late payments. Indeed, it has invoices due, with one of the lowest indices in the country (90). According to a national study conducted by the Bank of France in 2019, SMEs could have a cash flow of 19 billion euros if the payments were made on time. This means that there is still a great deal of work to be done on the part of the creditor companies. They must be able to settle their debts when they mature. Following the German model, they must be particularly reactive. The goal is to have one of the lowest responsiveness times in Europe.

The latest data recorded by the Banque de France and the Observatory of Payment Terms show that late payments continue to widen. This point does not benefit SMEs that lack cash. The installation of “name and shame” in the landscape of low-paying companies could have an impact. It would aim to reverse the trend, so that the rate of companies paying their invoices on time increases considerably. Thus, there are efforts to be made that this point is no longer a problem for SMEs and start-ups. Indeed, late payment is no longer one of the main factors in the bankruptcy of SMEs or start-ups. The latter particularly need working capital to continue their activity.

Audrey KOZACZKA – BORDEAUX Business

Sources:

Bank of France Publications – February / March 2019 – 2017 confirms that payment terms are no longer changing

Bank of France Publications – April – Sanctions and education still needed to combat late payments

Village Justice – April 26, 2019 – Payment deadline: still late

Economy.gouv – January 8, 2019 – Payment deadlines

Business Les Echos – September 25, 2019 – Payment deadlines: only one in two companies pays their bills by the hour by Yves VILAGINES

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