Late payments, cash flow issues, and insolvencies: VSEs-SMEs are more exposed and vulnerable to the risk of unpaid invoices and are therefore on the front line when difficulties arise. When order books are shrinking, payment terms are getting longer and cash flow is precarious, it's urgent to regain control of your accounts receivable. Here is our guidance on how to secure your cash flow and strengthen your company's resilience.
Why accounts receivable deserve your full attention
VSEs and SMEs face constant pressure: an uncertain economic climate, regulatory pressures, cash flow troubles, administrative complexity and longer payment terms. In this context, accounts receivable management is becoming a strategic (even vital!) concern for the financial management of small companies.
However, in most cases, accounts receivable are too often neglected and continue to be managed directly by the CEO of a VSE or a SME. The problem is that VSE-SME managers are engaged on all fronts and poorly equipped, if at all, and quickly find themselves overwhelmed by a lack of dedicated human and technological resources. The result is a time-consuming, poorly optimised organisation and a weakened cash flow.
And yet, rigorous monitoring of payments, an effective collection policy and anticipation of client risks can make all the difference. Simple reflexes, accessible tools and proven solutions exist to regain control of your accounts receivable and turn them into a lever for financial performance.
1 - Anticipate cash flow
As part of your trade operations, you grant payment terms to your partners on a daily basis. This provides your clients with short-term financing without having to go through a bank or financial institution. Problem: this common practice inevitably exposes your company to the risk of non-payment.
Small companies operate in a challenging environment, marked by both economic difficulties and more structural weaknesses. In a context where late payments and falling demand are weakening cash flow, it is essential to have a clear view of your financial flows. This allows you to target any financing needs, negotiate with your partners in good time, measure your working capital requirements, avoid unpleasant surprises and make more informed decisions.
To manage your trade receivables on a daily basis, use a simple dashboard that is updated regularly. This tool allows you to view expected cash inflows and outflows and identify periods of risk. In addition, easy-to-use digital tools (Excel, management software, banking platforms) allow you to automate this monitoring.
This daily monitoring is an essential management reflex that can be more than enough to secure your cash flows and manage your business with greater peace of mind, while being more proactive in anticipating cash flow tensions.
2 - Net cash flow: your financial compass to stay on course
To take the pulse of your financial health, calculate your net cash flow regularly. It is the difference between your available funds (in cash or bank deposits) and your short-term debts. In other words, it tells you whether you are able to meet your immediate commitments. A positive net cash flow gives you the flexibility to deal with short-term unforeseen events.
On the contrary side, a zero or negative net cash flow should raise alarm bells. It highlights immediate tension, a risk of blockages or even insolvency. It then becomes urgent to take action: hunt down debtors to speed up payments, negotiate with suppliers, reduce stocks or adjust certain expenses.
This simple but crucial calculation is an effective business decision-making tool. It helps you continue to grow your business while avoiding depending on short-term financing (bank overdrafts and credit, supplier credit, Debt Collection) and securing your investment projects.
3 - To invoice quickly, invoice well
A clear and well-defined invoicing process is the first barrier against late payments. Who is responsible for invoicing? When should invoices be issued? How should they be issued? Each of these questions must be clearly answered within your organisation. An invoice that is sent quickly, contains the right information in the right place and complies with regulations is more likely to be paid on time!
Organised and rigorous invoicing significantly reduces the average collection delay (DSO – Days Sales Outstanding). The shorter this period, the healthier your cash flow. Structuring your invoicing processes also allows you to limit disputes, improve client relations and strengthen your company's expertise and reputation. It is a simple but highly effective lever. In addition, automating invoicing via digital solutions (ERP, management software) saves time and makes the invoicing and collection process more reliable. Also remember to include mandatory legal notices and your payment terms, and to set up a systematic tracking system for your invoices.
4 - Follow up with your client: take action the very next day!
When your client receives a payment reminder the day after the first due date, they get a clear signal from you: you monitor your receivables closely, you are vigilant and organised. This rigour is essential to prevent late payments from turning into bad debts.
When it comes to unpaid debts, every day counts. The longer you wait, the less likely you are to collect your unpaid debt. A quick reminder often helps to resolve a situation that has simply been forgotten or overlooked. Regular communication with your debtor will always be more effective than a late, formal reminder. It can also help you identify clients facing difficulties and reach an amicable agreement with them!
Systematise your reminders (email, phone call, registered letter) and use automatic reminder tools to free yourself from this time-consuming task. Important: keep a record of every exchange so that you can justify your actions in the event of a dispute.
5 - Payment terms: your ally against late payments
All too often, VSEs and SMEs neglect to formalise their payment terms, allowing their clients to take advantage of a lack of clarity or impose their own terms. However, clarifying your terms and conditions of sale, requesting deposits or setting late payment penalties are easy ways to secure your cash flow. For example, the Daily Sales Outstanding period (DSO) can be drastically reduced by negotiating shorter payment terms and requesting deposits upon order. This limits your exposure to client risk and preserves your cash flow.
The contractual conditions must be clear, accessible and systematically communicated before the sale. They provide a protective legal framework. Deposits allow you to secure part of your turnover from the start of the service. Late payment penalties have a dual effect: they act as a deterrent and provide compensation. Even if they are rarely applied, simply mentioning them encourages customers to meet deadlines. Don't hesitate to remind customers of them in your reminders.
6 - Client risk: detect weak signals
Not all your clients entail the same level of risk. However, some signals should warn you: recurring delays, unusual requests, changes in attitude or way of acting in the commercial relationship... Integrating this analysis into your commercial process is a preventive reflex.
Arm yourself with tools for preventing unpaid invoices and analysing client risk, such as Trade Credit Insurance or Business Information services, which assess the probability of payment default. These solutions enable you to get to know your business partners better, adapt your payment terms to their financial health and limit your exposure. This is a good way to steer clear of bad payers and focus on the most reliable clients.
7 - Digitise your accounts receivable to improve cash flow
Digitising accounts receivable is one of the major challenges currently facing companies in terms of financial performance. Electronic invoicing, automated alerts and scheduled reminders are all tools that save you time, reduce errors and increase visibility over your cash flow, thereby facilitating the overall management of your business.
Beyond the "practical" benefits, companies who digitise their client management improve their collection rates and reduce payment times. There are many solutions available that are specifically tailored to VSEs and SMEs, including invoicing software, CRM and payment platforms. The investment is often modest compared to the efficiency gains achieved. The key is to choose tools that are simple, interoperable and tailored to your needs.
8 - Debt collection: act now, before it's too late!
In the current environment, the threat of late payments is weighing heavily on most companies around the world. Payment behaviours are deteriorating, companies are facing more frequent late payments, longer average payment terms and a worrying rise in insolvencies.
VSEs and SMEs suffer from much more limited financial reserves to weather these turbulent times and avoid a liquidity crisis. Paradoxically, although most VSEs and SMES pin these payment delays on their clients' financial issues, few of them opt for Debt Collection, which is considered time-consuming, complex, expensive and with no guarantee of success.
Regardless of the amount involved, late payment is never trivial (or painless). It can seriously weaken your cash flow and even threaten the survival of your company. Example: to compensate for an unpaid invoice of €5,000, a company with a 10% margin will have to generate €50,000 in additional turnover (if your net margin is 10%). The cost is therefore much higher than it appears!
The later you take action regarding the debt, the closer your unpaid debt is nearing irrecoverability. The day after the due date, it is vital to follow up, contact your debtor and initiate a clear procedure. It is often in the first few days that an amicable solution is most easily reached (and honoured!).
9 - Don't cope with unpaid bills on your own
Even for small companies, there are external solutions to protect against unpaid bills and guarantee payment of receivables in case of problems. Trade Credit Insurance, Factoring, Debt Collection agencies: these solutions remain underused by decision-makers, often due to a lack of knowledge or fear of complexity.
A powerful client risk management tool, Trade Credit Insurance safeguards your client receivables against the risk of non-payment. It protects you against unpaid bills by guaranteeing, under defined conditions, the payment of receivables in the event of default. It helps you develop your business by anticipating defaults and delegating Debt Collection in the event of a claim, such as the EasyLiner online, all-inclusive credit insurance solution for small businesses and SMEs.
Factoring, meanwhile, allows you to obtain an immediate advance of funds or the payment of your invoices via a third-party financial institution. This flexible financing solution improves your company's assets and secures your cash flow.
Too often overlooked, Debt Collection can make the difference between survival and growth for your company. For VSEs and SMEs without dedicated human or financial resources, outsourcing Debt Collection can therefore be an effective and profitable solution. To maximise your chances, Debt Collection must be fast, structured and proportionate. Coface's 200 Debt Collection experts and 250 legal partners can collect your debts in 190 countries: you are empowered to obtain the due funds faster while preserving your relationship with your debtors clients.
10 - Financial knowledge: invest in the sustainability of your company
Understanding key indicators, knowing how to analyze a balance sheet, mastering payment delays and the real impact of unpaid invoices, identifying client or supplier risks: these are all skills that will make you more autonomous in managing your company and better able to anticipate risks so you can make the best commercial decisions.
Having a solid financial culture allows you to better structure your processes, optimise your performance using digital decision-making tools, and implement an effective strategy for preventing unpaid invoices. This applies to the managers of VSEs-SMES as well as their teams, particularly those in charge of invoicing, client follow-up, and accounting.
Short training sessions, webinars, or bespoke support such as the ones offered by Coface can help you develop real expertise in commercial risk. Continuous training and keeping up to date with major trends in the global economy and country and sector risks is an investment in the long-term future of your company.
- Discover EasyLiner, the all-inclusive online Trade Credit Insurance solution for small businesses
- Trade credit insurance, Business information, Debt collection, Factoring: find the solution that suits your needs by contacting our experts now!
