Why should CFOs consider legal collection as soon as possible?

Despite limiting inflation to 5.9% in 2022, in 2023 “97% of French companies agreed to payment terms, with an average of 48 days”.
Despite these measures, “82% of them still had to deal with late payments over the past 12 months”. “.

These late payments necessarily have an impact on companies’ cash flow, as well as on their ability to pay their suppliers.
Entering into a judicial recovery to deal with unpaid bills will be an opportunity that will inevitably have consequences for the creditor.
These must be taken into account before any action is taken.

Importance of upstream amicable collection

Before taking any legal steps, which are often lengthy and costly for the creditor, it is always important to attempt amicable collection.
This mainly involves the use of reminder tools, notably e-mail or telephone reminders.

Although it can be carried out in-house, dunning will be all the more effective if it is carried out by experienced professionals trained in the art of dunning.
Outsourced collection solutions such as SoftCollect (mail reminders) and Collectel (telephone reminders) are two fast-acting tools which, in just a few weeks, can obtain payment or, failing that, an initial explanation of the delay.

In the event of failure, it is important to subcontract the file to professionals, with a dynamic out-of-court collection procedure limited to a maximum of a few weeks.
Beyond that, if the debtor does not react, legal proceedings should be envisaged as soon as possible.

Why take swift action against unpaid bills?

First and foremost, the financial health of your company.
Your company suffers the direct consequences of unpaid invoices.
Your cash flow is impacted, and your invoices may also be affected.
It’s a common domino effect: the customer doesn’t pay the company, which doesn’t pay its suppliers, who in turn are slow to pay their suppliers, and so on.

Secondly, according to the law and logic, you are asking for payment for work that has been carried out.
If the customer has no complaint about this, he must pay his invoice on time.
In fact, the new Late Payment Regulations will oblige the customer to pay invoices within 30 days, or face direct action for compensation.

A company that doesn’t pay its bills certainly has its own reasons, but if these are financial, then its finances are in a bad way.
This implies that the company could, in the more or less near future, enter into a safeguard or insolvency procedure.
In this case, you’ll have almost no chance of recovering what you’re owed.
By initiating legal proceedings before the declaration of default, you have a form of priority over the recovery of your outstanding debt.

Assessing the risk of unpaid receivables

When it comes to managing judicial collections, treasurers and finance directors need to be reactive in identifying potential risks in order to make informed decisions.

Among these risks, legal costs and reputational implications are at the top of the list.
It is essential to carefully consider the costs involved, bearing in mind that certain amounts, such as damages, may be charged to the debtor.

On the other hand, the risk of doing nothing carries with it the danger of incurring a dead loss for the company, and of recidivism.
If your customers think that you’ll never do anything about certain types of debt, they may pass this on to others who will take advantage of it.
For example: some people think that a fine abroad will never be recovered by the country because it’s too costly and time-consuming, so they tend never to pay.

Another challenge lies in the possibility of not being able to implement judicial collection due to missing supporting documents, unsigned documents, or non-compliant general terms and conditions of sale.
As a result, treasurers and CFOs need to develop proactive strategies to mitigate these risks and ensure judicious management of judicial recovery, safeguarding both the company’s finances and its reputation.

Strategies and best practices

An effective approach to judicial collection, taking into account the unique challenges of today’s economic environment.

• One obvious strategy is to determine the debtor’s solvency before starting legal proceedings, but also to ensure that all documents are in place (purchase order, delivery note, etc.).
• Another strategy is to initiate legal proceedings as soon as possible, after intensive out-of-court management. If internal reminders fail to produce results, there’s no point trying too hard to circumvent the obvious: the debtor will have to be coerced.

 

Taking prescription periods into account

Visit limitation periods vary according to the nature of the claim. For B2B claims (creditor=business and debtor=business), the standard period is 5 years.

However, there are exceptions, such as in the case of transport: 1-year time limit.

Outside the statute of limitations, it is imperative to initiate legal proceedings. as soon as possible especially for B2B receivables, as the number of insolvency proceedings is rising sharply, and the longer you wait, the greater the risk that the company will be subject to insolvency proceedings.

Choosing the right legal procedure?

Reminder of the 4 types of legal proceedings, you need to set the right one in motion, e.g. don’t set up an injunction to pay for a claim of €50K or if there’s a dispute :

Type of procedure	Amount of claim	Time limit
Simplified” payment order procedure	For claims under €1,000 for which full legal proceedings (with enforcement) would be too costly.	Immediate, the writ of execution remains valid for 10 years.
Injunction to pay	For claims 20,000.00€ or less.	Once the Certificate of Non-opposition (CNO) has been obtained, the judicial commissioner can begin enforcement.
Provisional injunction	Preferable for substantial amounts (above 15000 / 20000€) and for which no dispute or contestation has been raised by the debtor.	A lawyer is required, but the procedure is quick (usually 2 hearings). The interlocutory injunction is obtained within a few weeks and is immediately enforceable by the court commissioner.
Subpoena on the merits	Preferable for disputed claims.	This procedure is generally lengthy and can take from 3 to 18 months, or even longer, depending on the number of submissions exchanged and the court’s workload.

In summary, managing judicial recovery requires a balanced approach to identifying and managing risks, taking into account costs, reputational implications and potential financial losses.

In the future, in an ever-changing economic environment, companies will need to develop agile strategies to successfully navigate the complex debt collection landscape, adapting to emerging economic trends and anticipating potential challenges.