The mortality rate of small businesses has always been very high. In the first 3 years of their existence, it is about 33% and almost 50% over 5 years. As an example, in 2017 there were more than 600,000 business creations in France, out of these 600,000 businesses 200,000 will no longer exist in 2020 (more than 60,000 per year).
Small companies are extremely vulnerable in the first years of their existence. Very often they don't survive not because of a lack of knowledge of their business or skills but because of simple management problems.
Of the 60,000 business closures per year, 16,000 are directly due to unpaid bills. Unpaid invoices are therefore one of the main causes of death for small companies. The latter do not take into consideration the problems of customer reminders. They wrongly think that it is more important to get the job done than to get paid and often neglect this thankless task to supposedly preserve their customer relationship.
In the country that is the champion of bad debtors (France), very small businesses, which are also the most vulnerable, are the forgotten ones in debt collection. This is for several reasons:
- Low billing amounts
- The fixed cost of collection is often too high
- The desire not to damage the relationship with strategic customers
- Lack of a quick and easy online solution
There is a multiplicity of solutions that often compete with each other: amicable collection, legal collection, credit insurance, outsourcing of the customer account, etc.
The steps and courses of action chosen must correspond to the specificity of each situation. The criteria to be taken into account very often concern the status of the debtor, his assets and the amount of the claim.
Debt collection is a key element in the management of a company. Many company managers have learned this the hard way. Indeed, it is not enough to invoice, it is essential for the financial balance of a company that the turnover is transformed into cash.
In France, customers often only pay after an action has been taken by the people in charge of debt collection. Therefore, in order for the debt collection to be as efficient as possible, it is necessary to have previously established sufficiently explicit general terms and conditions of sale accompanied by a validated order form, an invoice and, if necessary, a delivery note.
Depending on the importance of a file or the recurrence of the business done with a client, it may be wise to ask for the company's rating.
The work of debt collection requires the implementation of a well-defined methodology with actions associated with each step.
The indicators for monitoring collection are, of course, the average payment period for customers, which should be compared with that for suppliers in order to guarantee a good balance in the company's working capital. The analysis of the aged trial balance allows to follow the age of the receivables and to adapt the level of its collection actions according to the age of the receivable.
When it comes to debt collection, it is important to go fast because the more time passes, the more the ability to collect diminishes. Indeed, sometimes the documents are lost, the interlocutors change and the history disappears. Moreover, it is much more economical to collect a debt amicably than to enter into a contentious collection process which requires specific skills and a more restrictive formalism.
Finally, good communication with the sales teams is one of the key factors of success in the process: the sales people are in direct contact with the customers on a daily basis and are often a valuable source of information.
In conclusion, a collection policy is not very complicated to set up and contributes strongly to a better management of the company and improves its self-financing capacity.
This is what we propose to describe point by point in this file.