After years of discussion and debate in order to combat long payment periods, habits are finally changing (almost) everywhere in Europe. Below follows an analysis of this phenomenon.
Payment periods have never been so short in Europe. Altares has published a study on the payment behaviour of companies across France and Europe over the course of the third and fourth quarters of 2016.
We learn from this report (only available in French) that the reduction in payment periods is a phenomenon observed throughout Europe. Payment periods are less than 13 days on average (for the first time since the beginning of 2008), with disparities between countries.
Germany and the Netherlands are doing even better: 6.3 and 6.5 days respectively. Belgium achieved an average of 12.6 days, which is still not bad. In the UK however, payment behaviours are struggling to change: the average payment period there is 15.8 days. But there are worse cases... Notably in Italy (18.5 days) and, above all, in Portugal (27 days).
The study notes that construction is the sector where suppliers are paid most quickly. The retail trade is also in a good position, but payment periods are still one day longer than the global average. Business services structures are significantly less disciplined, notably for non-road freight transport activities.
"Although it is certainly too soon to rejoice in a long-term change in mentalities, good intentions could be supported by the data economy and paperless business processes, starting with the invoicing chain. For example, electronic invoicing is no longer just an option." Thierry Millon, Director of Studies at Altares
What does Belgian law say about payment periods?
Belgian law specifies a payment period of 30 days between companies, from the date of receiving the invoice, the receipt of goods purchased for resale or the delivery of services. The legal payment period may be extended to no more than 60 days as long as it is agreed by both parties. From now on, in the case of late payment, the creditor can legally claim a fixed compensation payment of €40 for recovery costs.
Good to know: a single reminder for taxes
From 1 May 2017, Belgian citizens and companies will only receive a single payment reminder by post, before initial legal action in case of non-payment, including for taxes assimilated to income taxes.
How does factoring work?
The principle behind factoring is simple: you assign your receivables (invoices) to a third party – the factor – with or without cover for the risk of non-payment. When you send your invoice to the debtor, the factoring company can pay an advance of up to 85% of the amount. That means you don't have to wait for payment and have immediate access to the funds. The factoring company is also responsible for monitoring and collection.
You have the option of using the following services, depending on your company's specific requirements:
Outsourcing of your accounts receivable administration
If you select this option, you assign all or some of your receivables file to the factoring company in exchange for a factoring fee. The factoring company performs the following tasks:
- entering invoices and credit notes after a thorough check and then updating the debtor data;
- checking and allocating incoming payments, including a check on partial payments and payment or invoice references;
- drafting and providing online reports and statistics, so that you always have a clear idea of the status of outstanding receivables and payments already received.
Good to know
The factoring company performs a thorough analysis before taking over your accounts receivable. It may decide to exclude some debtors contractually, for instance if they have a particularly poor credit rating, if they are natural persons or associated enterprises, operate in countries with a high default risk or have stated that they do not wish to pay via factoring.
Monitoring and collection of your outstanding invoices
In this case, the factoring company is responsible for collection of your outstanding receivables and following up on debtors by phone and with written reminders. This means you have more time to build up good relationships with your customers.
In practical terms, you issue your invoices and send them electronically from your accounting program to the factoring company, which is then responsible for collection and follow-up. Because of its expertise and experience, the factoring company is generally able to collect payment of the invoices 25% more quickly than your own accounts department. And as a third party, it is often more successful when it comes to payment notices.
You can track the entire process via an online application, so you are always aware of changes in your receivables portfolio. For instance, you can consult detailed information on your outstanding invoices, credit notes, payments and disputed payments at any time.
Advances based on the amounts of your invoices
In addition to outsourcing their receivables management, many companies that use factoring also call upon advances based on their outstanding invoices.
In this case the factoring company advances a percentage of the invoice amount (usually between 75% and 85%) immediately after receipt of the invoice. You receive the balance when the debtor has paid the factoring company. You pay interest on the amount advanced.
This form of advance has distinct advantages:
- You generate additional working capital on the basis of your outstanding receivables.
- You improve your cash position, so it is easier to invest or enter new markets. In addition, as a quick payer you can request healthy discounts from your suppliers.
- There is a direct link between your available funds and turnover growth: more sales means more funding for your company's continued growth.
Cover for the non-payment risk
Factoring companies offer various packages so that you can obtain 100% cover for the risk of non-payment of your outstanding invoices. That means you don't have to worry about the possibility of your debtors defaulting. This additional certainty of payment also makes it easier for you to offer more flexible payment terms, which could give you a considerable competitive edge.
The following risks are covered:
- Proven insolvency, for instance as a result of bankruptcy or judicial settlement.
- Probable insolvency: when the debtor has still not paid within a contractually agreed deadline after the due date of the invoice (usually ninety days).
If one of your debtors defaults, the factoring company will pay the entire amount of the invoice, within the predetermined credit limits, within the agreed deadline after the due date of the invoice.
Good to know
A credit insurance policy is also particularly useful to safeguard your export transactions.Through the credit insurer, you have access to:
- information on the credit ratings of your foreign debtors
- information on the specific risks associated with the country of destination
- bank and customs guarantees with your foreign trading partner
- a collection service if your foreign debtors don’t pay their invoice
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.'