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Company failures, settlement periods and the financial crisis: the terrible trio

If you have begun this new year full of hope and motivation for the creation, development or taking over of a business in France, we strongly advise you not to read the report published by Altarès  on company failures in 2011, despite the fact that it is extremely comprehensive and insightful.

Before telling you what you could learn from reading this report, it is important to note what is meant here by corporate ‘failure’ (défaillance).  It is the legal event which officially designates the failure to pay bills as they fall due by a company or cessation de paiement, i.e. the inability for a company to cover its current liabilities with its available assets, leading to judicial administration or liquidation proceedings before the courts.  Cessation de paiement is therefore inextricably linked to cashflow difficulties and settlement periods.

Indeed, in reading the report, you will learn, in particular, that, “The slow and uneven upturn of 2010 enabled the number of company failures to remain below the 60,000 mark.  In 2011, the question of sovereign debt convinced business leaders to remain in their ‘crisis management’ mode, leading to moratoria on employment, delayed investments, etc.  In 2011, another 60,000 companies went before the courts due to lack of funds, cashflow difficulties ….
“Despite the efforts of professional organisations and legislation, recourse to inter-company loans remains a common and even preferred alternative to a cash dearth.  The amount of customer receivables currently amounts to approximately 600 billion euros; it is the first means of short-term financing for companies, far in front of short-term bank loans.  Companies which allow a payment period for settlement of invoices are acting as bankers for customers for whom they have little idea of the solvency, thus exposing themselves to a serious risk of incurring bad debts.”

The management of client and supplier accounts is thus essential to guaranteeing the longevity of the company and avoiding corporate failure.  Solutions for decreasing settlement periods were set out in our previous article.

If you have a concern as regards the solvency of your customers and suppliers, there is an easy way to put your mind at ease (or not): take a look on the Infogreffe website  to see whether the company has filed its annual accounts for the previous financial year.  Their absence may be a sign of financial difficulties, which the company director does not want to reveal; legally, all companies are required to publish their accounts annually.  Then check on Infogreffe whether any insolvency proceedings have been initiated against this company .

In conclusion, in the words of Mr. Million of Altarès, “One in four company failures  results from getting behind with payments.  Such arrears increase cash-flow difficulties rather than relieving them.  Obtaining payment by customers, finding reliable suppliers and doing business in a transparent manner are simple and effective ways of reverting to the road to profitable growth.”

Samantha Verhaeghe (samantha_verhaeghe@yahoo.co.uk )

http://www.altares.fr/index.php/publications/etudes-altares/defaillances-dentreprises:
Go to http://www.infogreffe.fr/  then click on ‘English’ in the top right-hand corner: 1- enter the company name or identification number. 2- click on ‘previous key figures’ to see the financial results of previous years and whether the accounts were filed.
On the Infogreffe website http://www.infogreffe.fr/, click on “Contingency, court-supervised recovery or liquidation by order of Court” and you can view the information for around 2 euros.

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