Debt and penalty collection an issue for businesses

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When a company performs a service on behalf of one of its customers, the customer is required to pay the price of the service in return. In the business relationship, this price is set beforehand and a deadline for settlement is specified. While some companies pay the entire invoice to order, others have the option to pay within several maturities, with settlement dates. If it is normal for the customer to meet the payment deadlines, the results of a delay in the settlement of the receivables are crucial for a company’s treasury. In some industries, such as business service, this real scourge is very present and has a direct impact on the good health of the supplier company. In this context, it is important to have all the cards in hand, and to understand, for example, how to calculate interest on unpaid bills.

The payment of invoices, a crucial point of the treasury

When a company performs a benefit for its creditor, the time to settle the invoice is mentioned in the contract between the two parties. According to a study conducted by COFACE, every year, French companies accumulate 56 billion euros in unpaid debts, which is about the equivalent of 2% of the national GDP.

The impact of these unpaid debts on time therefore has an impact not only on the life of the company, but on the French economy as a whole. According to a study conducted in May 2017 by the ANCR (National Union of Debt Recovery And Commercial Intelligence Firms), in 2016, only 38.1% of claims against French companies had been paid on time, well below other European results. For a growing company, any debt paid late prevents an investment for its growth, but also to have sufficient cash to cope with the vagaries of business and to settle its own debts.

Late penalties, the solution for a timely settlement

In order to guard against the risks of unpaid debts, companies are turning to an overhaul of the contract that binds them to their customers, especially on the aspect of the settlement. Indeed, it is now specified (apart from contracts with payment at receipt) that in case of late payment, the customer will be subject to increasing penalties depending on the number of days of overruns. These penalties (or interest) are calculated on the basis of the original contract by the rate that is applied over the period, multiplied by the number of days late over the year.

This gives the following formula: (the amount TTC or HT x rate applicable over the period) x (number of days late/365).

If you need, you can use collection software services, such as Clearnox, an SAAS debt collection software that accompanies you in your creditors’ stimulus. By applying this penalty system to the contract in the event of a late payment, your customer will be more likely to pay their due within the allotted time. The goal is to have security in your finances, but don’t degrade your relationship with your client, because your reputation must also be preserved!



ANCR study May 2017

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