Late payments or payment defaults are a cause for concern for companies, but they tend to have a greater impact on the cash flow of SMEs than on that of larger organizations. Here is a summary of the main steps to take when dealing with a difficult client.
In 2021, 83% of the Swiss companies surveyed by Intrum (see sidebar) reported problems with late payments. However, economic difficulties linked to the Covid-19 pandemic are not necessarily responsible, emphasizes Jürg Rösti, professor at the School of Management in Fribourg. "As a result of federal efforts, most companies have been able to settle their accounts with suppliers, and the number of bankruptcies has actually declined, at least from the year 2020 to the first half of 2021."
According to Eric Muster, a lawyer with the Lausanne firm Rusconi&Associés and a specialist in debt collection law, the concerns of SMEs are justified. "SMEs have less cash flow and their business often depends on one or two key contracts. If a payment problem occurs with one of these, it can quickly complicate the situation." According to Jürg Rösti, SMEs are not the only companies that face problematic payers, but the nature of their operations makes them more vulnerable. "This is particularly true in certain sectors such as online or mail orders, where little information is available about the buyers. Local or regional clients, whose reputations are better understood, pose less of a risk."
Where do I start if I have a problem?
How to react to a defaulting customer? "Jürg Rösti believes that it is wise to start with a simple follow-up. It could be that the explanation is a straightforward one. A phone call costs next to nothing and will reveal more." If this does not work, another inexpensive step is to send between one and three follow-up letters. "It is customary to begin with a letter of formal notice," explains Eric Muster. "If no payment is forthcoming, you can submit a debt collection request to the relevant debt collection office." The process can also be made on the online portal for businesses EasyGov.swiss.
The debt collection office sends the debtor a payment order, with ten days to contest it. If this is not the case, or if a court order compels him to do so, the creditor can file a requisition to continue the proceedings and thus start the actual debt collection procedure. It's a complex approach, warns Eric Muster: "The process can take months or even years, especially if you do not have an acknowledgement of debt from the debtor."
If the defaulting party is not based in Switzerland, the procedure is obviously more complex. "If your debtor is based in Paris, for example, the procedure must be carried out before the French courts, unless otherwise specified by the lawyer. If the sums involved are large, it will take a long time, but in countries like France, seizure proceedings work quite well." According to Eric Muster, small claims in a country that is far away or in a crisis are not necessarily worth the risk. He regularly advises clients to abandon their claims and calls for a certain pragmatism. "If the procedure you initiate costs you more than the debt you wish to recover, it is not necessarily worth it."
To protect yourself against late payment or, worse, default, you have to be proactive, explains Jürg Rösti. "Knowing your customers is essential. We have fewer problems with companies that we have worked for for a long time. Risk is higher with a new partner."
Eric Muster reminds us of some important points: checking that the client actually exists or is registered in Switzerland, for example, is easy and inexpensive. If the client is Swiss, requesting a credit report will reveal whether the future contractual partner is already in litigation. It is anonymous and only costs CHF 18. However, this database is not publicly available and there must be a justified reason for accessing it, such as pre-contractual steps. Although effective, the tool is not perfect: the register is compiled at district level. Should an offending company move to another canton, the information about it will not be passed on. Another limitation is that it takes time and a company that sells its products to a large number of customers can never verify everything. The easiest way to do this is to use companies that specialize in debt analysis and collection.
One last useful thought: "Ask for a deposit and make delivery conditional on payment," suggests Jürg Rösti. This can be a double-edged sword, as a potential customer may refuse and turn to another supplier. As is often the case, this is primarily a matter of risk calculation.
On the theme
Companies facing unpaid bills
83% of Swiss companies report problems due to late payments.
One in two companies has been asked to extend payment terms.
64% of respondents fear that the risk will increase.
Source: 2021 edition of the European Payment Report (only in French) published by Intrum, a firm specializing in credit management and financial services.
Last modification 04.05.2022