Debt collection is a tricky and often overslept task for companies of all sizes, but it is crucial for SMEs. More exposed to risk, they are also much more impacted by non-payment and often do not have sufficient cash or human resources to absorb financial shocks as easily as large organisations.
As the primary source of finance for the economy, inter-company credit encourages your commercial exchanges but inevitably exposes you to the risk of non-payment. And yet, when granting payment terms to their commercial partners, SMEs are not always aware of the risks involved.
Payment behaviour: widespread deterioration
In today's environment, late payment is a threat to most companies in global trade. With good reason: payment behaviour is deteriorating around the world. Within the major economies, companies are faced with systemic late payment. Late payments are now more frequent in France (85%), Germany (78%), Poland (60.1%), China (65%), Latin America (51%) and Asia (49%). Average payment terms are getting longer: over 50 days in France and Latin America, longer than in Germany (32.1 days) and Poland (46.2 days), but still shorter than in China (76 days) and the rest of Asia (65 days).
The worrying rise in business insolvencies worldwide is a dramatic illustration of these tensions. Business insolvencies are now much higher than they were before the 2019 pandemic: 66,500 in France in 2024 (up 15%), nearly 22,000 in Germany (up 18%), around 18,900 in the United States (up 18%) and 30,680 (up 3%) in Central and Eastern Europe (excluding Hungary). SMEs with sales of less than R5 000,000 are the hardest hit by these insolvencies. And each failure tells a similar story: cash flow dries up, unpayable bills and charges pile up and, ultimately, financial strangulation.
Risk of non-payment: SMEs most at risk
SMEs are structurally vulnerable to this economic turbulence. Usually less inclined to adopt this practice, most SMEs are now granting payment terms to their customers. However, the length of late payment seems to be correlated with the size of the company, and unfortunately it is the SMEs that are suffering from a higher average delay. On average, SMEs experience delays of less than a month, compared with 15 to 30 days for ETIs and multinationals. In addition, the vast majority of SMEs report longer lead times, compared with "only" half the SMEs and large companies. Most of them attribute these late payments to their customers' financial difficulties, far ahead of organisational problems or cash flow management (without financial difficulties). And yet, few SMEs resort to debt collection because of the perception that the process is complex and time-consuming, and that the costs are high... with no guarantee of results!
The management of non-payments is all the more essential for SMEs as they are not only particularly vulnerable to the risk of non-payment and insolvency, but are also more heavily impacted by the financial shock that a debt to be recovered can generate. A single non-payment can seriously undermine the cash flow, and even threaten the survival, of a SME!
Rachid Aoulad Hadj, Debt Collection Sales Director of Coface Western Europe and Africa.
A much greater shock for SMEs
In the world of SMEs, every euro counts. Oscillating between significant and critical levels, the extent of the "shock" of non-payment is much greater for SMEs than for larger companies. Unlike large groups, with their more comfortable cushions, SMEs have limited financial reserves to absorb payment defaults. Cash flow and financial margins are quickly squeezed by unpaid debts, which can quickly lead to a liquidity crisis. This is all the more true given that, in the face of high costs and weak demand, the cash position of SMEs has deteriorated significantly in recent years.
Some SMEs even live off cash receipts to cover their running costs (wages, social security contributions, rent, purchases from suppliers). This just-in-time operation puts them in a situation of permanent insecurity. Each unpaid invoice creates a wave of disruption that extends well beyond the initial transaction: as well as causing financial difficulties, unpaid invoices generate increased costs and additional financing charges. This makes it even more difficult for a small business to maintain a healthy cash flow and its ability to grow.
Debt collection: specific challenges to SMEs
Generally speaking, SMEs do not have dedicated debt collection teams. And in the (rare) cases where debt collection is managed in-house, it is very often synonymous with an obstacle course. Lack of legal expertise, unfamiliarity with the various steps to be followed, complex procedures to master, specific local features to take into account... these are just some of the barriers to debt collection! Furthermore, SMEs have little or no equipment, either in terms of dunning management tools or commercial risk mitigation solutions. (credit insurance, Business Information services, debt collection agencies, etc.)
Finally, the fear of damaging a client relationship paralyses many decision-makers when it comes to demanding payment for outstanding debts. Very often, the manager of a SME is the key player in the commercial relationship: it is more complicated for him or her to disengage from the commercial relationship and adopt an approach that focuses on managing the commercial risk. As a result, many SMEs sail blindly, alternating between timid relaunching, silent despair and, in some cases, resignation.
Successful debt collection depends above all on being on the ground, mastering the art of reminders and meeting deadlines, and being able to monitor debtor customers closely.
Nathalie Paris, Director of Indemnification and Recovery for France, Europe and West Africa.
Professional collections: your curative emergency solution
Safeguarding cash flow remains the sinews of war for all SMEs. There are various levers you can use to reduce your working capital requirements and improve your cash flow. All too often neglected, recovery can make the difference between your company's growth and survival. For SMEs with no dedicated human or financial resources, outsourcing debt collection is more of an investment than an expense. Over and above the time saved and stress avoided , it helps to limit the risk of cash shortages, optimise your financial performance and improve your company's profitability, while allowing you to invest calmly in developing your business.
Don't wait for your outstanding debts to become irrecoverable before taking action. Professional Debt Collection solutions such as those offered by Coface provide you with :
- A dedicated team of managers, local support and real-time access to your file
- 200 local experts and collection solutions in 195 countries
- A global network of 250 legal partners
- Remuneration based solely on debts recovered!
Credit insurance, Business information services: your long-term financial shields
Although there are emergency curative solutions for recovering your unpaid invoices, in the medium and long term it is preferable to stay away from bad payers to avoid any debts. Using a financial risk management tool is an effective way of minimising disruption to your business activities. This is precisely the role of credit insurance. International credit insurancemarket leaders such as Coface offer tailor-made solutions in nearly 200 markets. The ultimate defence against the unexpected, Coface's credit insurance enables you to develop your business with complete peace of mind, thanks to a better assessment of your markets and preventive management of the trade credit risk with your partners (customers, suppliers, prospects). In the event of non-payment, your company is protected: you receive compensation for up to 90% of the losses incurred.
A global leading player in trade credit risk management for nearly 80 years, Coface also providesBusiness Information services to keep you away from bad payers. With 240 million companies referenced in its global database, Coface Business Information enables you to assess the financial health of your partners before any transaction. By using the Urba360 score for the probability of payment default, real-time risk analyses and by being alerted to the slightest weak signal about your prospects, customers or suppliers, you give your company the means to make the best decisions and trade more intelligently.
Debt collection, credit insurance, Business Information:contact our expertsnow to benefit from a tailor-made solution.
