Receivables are what keep a company or institution in business. They are the final step of the Cash Conversion Cycle and close the Working Capital gap. In other words, Receivables are really important for a treasurer and yet often seen as a difficult topic to address. Inefficiency and frustration in the collection process often arise from the complexity in understanding the position of the payer.
Performing collections comes down to three main challenges: local payment culture, selection of collection instruments and collections matching.
Get inside the world of the payer
The efficiency of a collection product is often defined by the impact it has on the payer. This is mostly observed in commercial payments – both in brick-and-mortar shops as well as in e-commerce – where merchants are looking for frictionless payments to ensure that the last step of the sales journey is as smooth as possible.
The efficiency of any collection instrument itself is undeniably depending on the collaboration of the payer. Considering how you would like to pay yourself – either personally or professionally – may already give a good idea of the position of the payer.
Local payment culture
One of the factors that is difficult to influence is the payment culture of a certain country. Culture in each country often has a bias towards a certain category of instruments, such as direct debits in Germany or cheques in France, due to legacy products. Statistics of the European Central Bank show clear preferences. Taking this cultural appetite into consideration in the selection of the proposed collection method can reduce friction and increase efficiency.
The Single Euro Payments Area [SEPA] offers a high level of standardisation in a large geographical area, making the effort for implementation reasonably small.
Success and efficiency of the implementation of SEPA is not in the ability to process them, but in the value they offer to the business and customer relationship.
Nevertheless, the biggest achievement of the harmonised landscape is the momentum of innovation to connect payer and beneficiary. Faster, easier and richer means of payment are around the corner, but the acceptance by the payer will determine its success. Optimising the use of already implemented payment instruments will most likely bring the highest return for businesses today. Making a selection of the most optimal means of payment for each business activity and each payer segment is a critical success factor.
Two of the most noticed complaints of payers – both professionals and consumers – are the management of outstanding invoices and the manual encoding of payment information. At the receivables side, the most noticed complaints are receivables forecasting and matching the collected funds with the outstanding receivable.
Direct debit products are initiated by the beneficiary of the funds, so all of the above complaints are addressed. However, some payer segments do not appreciate what they call a lack of control. Countries that traditionally have a low appreciation for direct debits, have installed different solution based on Credit Transfers. Some countries installed Peer-to-Peer e-invoice solutions, others developed structured or extended remittance information’s to guarantee collection matching.
Optimise your working capital with factoring
How can you keep your working capital healthy while incorporating the requisite financial flexibility? Factoring helps you to finance your cash requirements in a proper, timely and suitable way.
Securing liquidity is the key to financing your working capital requirements and keeping your business running smoothly at all times. That's exactly what factoring offers.It is a structural solution for optimising working capital. In the video below (in Dutch) in less than half an hour you will gain a clear picture of what factoring has to offer.
If you prefer to watch the video in French, click here.
Factoring: a tailored structural solution
In exchange for transferring your invoices to an external factoring company, you can count on fast, flexible financing, monitor the collection of your invoices, and protect yourself against potential bankruptcy among your customers. Each factoring solution is tailored to fit the needs of your business. This includes companies operating at international level. In Belgium, one in six companies currently outsource their invoices to an external factoring company. The same trend is evident in other European countries.
The art of negotiating payment terms with suppliers
Cash management is an SME's frontline weapon, and payment terms are a key means of keeping it under control – providing companies proactively open negotiations with their suppliers. But this solution remains underutilised by entrepreneurs
Cash flow difficulties are the number one cause of company bankruptcy in Belgium. Business owners face a constant battle to stay in control and maintain the balance of their inflows and outflows. Negotiating payment terms is one of the levers that can be employed: shortening them for customers while extending them for suppliers. In Belgium, the statutory deadline between companies is 30 days. Yet the reality can be different, since either trading partner may deviate from the rule. Where one of the parties is in a dominant position, the other is often obliged to accept the conditions it imposes... meaning its payment term becomes longer. Everything is negotiable, however, even with "big" suppliers, as long as you formalise the situation and ensure you protect your business relationship.
Who is your supplier?
They say information is power, and there is some truth in this. Indeed, the more you know about your "opponent", the more you will be able to turn the tables. How are the company's finances, and what is its cash position? Is it experiencing difficulties? Where is it placed on the market, particularly in relation to its competitors? What is your dependency ratio in relation to this partner? How does it make payments, and what is its purchase history? The answers to these questions will allow you to take up better positions in the negotiations, and find the best angle to launch an attack that catches the other side by surprise. Specialised websites, data banks, word of mouth (the competition): all means are justified in order to find out more!
What do you want to gain?
And a resulting question: what are you willing to put on the table to achieve your objective? In other words, you need to be properly prepared and establish a strategy regarding what you are willing to concede (and how much this will cost you) and what you absolutely want to gain in return. Remember that the other party has presumably not requested anything, and potentially has little to gain. Therefore, you cannot arrive empty-handed. Are you willing to order larger volumes in order to extend your payment terms? Can you envisage a long-term contractual commitment? Could you contemplate paying more in return for spreading your debits further? Imagine you are playing poker: clearly, you should keep your cards close to your chest. Wait for the right time to show your negotiating partner that you are prepared to make concessions.
How can you negotiate successfully?
The art of negotiating is a difficult skill. However well prepared you are, keep the following principles in mind:
- Even if you have brought a proposal to the table, listen to the other side and pay attention to detail so that you can react quickly.
- Do not be frightened of bearing your teeth a little, even if you are concerned about spoiling the business relationship with your supplier. Stand your ground and mention what the competition can offer you, for example.
- You must control how you communicate, so that you avoid giving the impression that you have cash management problems. Emphasise that payment delays do not help anyone, and that it would be better to agree on a reasonable and sustainable schedule.
- If your business relationship is established, mention your positive partnership and your desire to see this continue.
- During discussions, regularly refer to how far you have come and your shared progress to date. This positive tone will be well received.
- If the negotiations stall, try to resolve the difficulty by pulling out a trump card, for example (i.e. a concession).
- Remember: a good agreement is balanced, and leaves neither party feeling wronged. So do not be too greedy: the outcome must be worthwhile.
- Are you happy with the situation? Move to finalise the deal, either by accepting what is on offer or by finally opting for a fair compromise.
#StrongerTogether Biogazelle plays part in fight against coronavirus
Biogazelle is playing a huge role in the shared battle against the coronavirus. In record time, the Ghent biotech company has developed a test for detecting infections.
Since 2007, Biogazelle has offered support to the pharmaceutical and medical industries. The company develops revolutionary techniques for tasks such as detecting new illnesses, multiplying tiny amounts of genetic material to create analysable samples.
“In just 10 days, we have come up with an extremely sensitive coronavirus detection test,” says CEO Mieke Van Acker. “Our speed and flexibility have amazed the big pharma companies. We started with 2,000 tests a day, and that number has already shot up. But we are still a long way from our limit.”
To drive capacity even further, Biogazelle has invested in a robot. “Very soon this will automate certain manual operations,” the CEO explains. “Inactivation of the virus is currently done manually. By automating this step in the process, we will significantly increase efficiency.”
Biogazelle is part of a coronavirus consortium established by minister Philippe De Backer that also includes three large pharma companies and a university. “We are joining forces to further increase the testing capacity in our country,” says Mieke Van Acker. “Such a collaboration is unprecedented.”
Every link is crucial
According to Van Acker, every link in the chain is equally important. “We ourselves are supported by Ghent University, UZ Gent and the Flemish Institute for Biotechnology. We have help from volunteers, and industry colleagues have also offered test apparatus.
But the financial support from BNP Paribas Fortis is as valuable as the scientific aspect.” This financial support consists of a credit line and leasing agreement. Biogazelle will also make use of BNP Paribas Fortis Factor, a series of solutions aimed at optimising work capital and the resulting financial needs.
How to automatically get the best exchange rate
Companies working with several currencies often want to avoid exchange rate risks and administrative hassle. That is why the bank has come up with a behind-the-scenes solution: the 'embedded FX' service.
Embedded FX? You don't even need to remember the name, because the system works automatically, without you even having to think about it. FX doesn't stand for Hollywood-style special effects, but for Foreign Exchange, sometimes referred to as Cross Currency. You are guaranteed to come across this at some point if you make international payments, since they are not always executed in the currency of the debit account (referred to as 'mono-currency payments'). Sometimes, the currencies of the accounts the payment is being debited from or credited to may not be the same. These are FX payments. During such payments, an exchange takes place: one currency is sold and another bought, without you having to lift a finger.
The volumes on the FX market might be greater than you'd think. To put it plainly: they are enormous. Every day, more than 5 trillion American dollars are traded. That is 5000 billion American dollars, more than the volume involved in global equities trading...in a single day. The FX market operates day and night, and only closes over the weekend from 10 pm on Friday until 10 pm on Sunday.
Wim Grosemans (Head of Product Management Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'On the FX market, banks essentially play the role of a wholesaler: they buy and sell currencies on the international market, and then sell them on to the customer with a mark-up. BNP Paribas is one of the biggest players, ranking among the global top ten. There is no official market rate in this over-the-counter market. Each bank determines the rate at which it wants to buy and sell currencies itself. Unofficial market rates can be found in publications from a number of public institutions (such as the European Central Bank) and private organisations (Reuters, Bloomberg etc.). These are based on the average rate offered by a number of major banks.'
The rate is always determined per currency pair, for example the euro versus the American dollar: EUR/USD = 1.1119. The most traded pair is EUR/USD, which represents 25% of daily trade. Second on the list is the pair American dollar/Japanese yen
(USD/JPY) with 18%, with British pound/American dollar (GBP/USD) coming in third at 9%.
Alwin Vande Loock (Product Marketing Manager Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'As for the rate, banks offer a number of options. The rate can be a live market rate that is continuously being updated. The EUR/USD rate, for example, is adjusted more than 50 times per second. Another option is a daily rate. In this case, a rate is offered that will apply for a certain period.'
For many companies, all of this hassle with exchange rates is a real headache. Too complex, too expensive in terms of administrative costs and too many exchange rate risks. For those customers, banks have a solution: embedded FX.
Wim Grosemans (Head of Product Management Payments and Receivables at the BNP Paribas Cash Management Competence Center):
'When you make a payment in a currency you do not hold an account in, the bank will immediately retrieve a good exchange rate from its colleagues in the dealing room of the Global Markets department. The rate is usually confirmed within one hour after the customer has sent the payment. Unless large amounts are being transferred, the entire process is automatic. The IT systems used are much more efficient than they were just a few years ago, meaning that the bank is less exposed to volatility and can offer its customers a competitive rate. Embedded FX is an efficient and simple alternative for anyone who doesn't want to hold accounts in different currencies and run the exchange rate risks that entails. For the customer, it no longer matters what currency they use: the process is exactly the same. What's more, it gives them peace of mind, because they know that they'll always get a great rate.'