The measures that are enabling businesses to survive the crisis may have negative effects on banks, who are now faced with managing late and defaulted payments along with a build-up of cases to process. Economic recovery is accompanied by a new way of understanding risks and customer service, with the future of commercial relations at stake.
Drastic times call for drastic measures. As part of the public health crisis, the French government has introduced measures for easing companies’ contractual obligations to help them deal with this exceptional situation. The closure of production sites, decreased demand and public health restrictions made it difficult – if not impossible – to respect deadlines, invoice payments and other commercial contracts.
While state-led initiatives were welcomed by those who benefited from them, they do come with a certain amount of risk. And the current re-confinement in France isn’t helping the situation. Here are just two examples:
Risks linked to the moratorium period: the nonpayment of invoices
Two rulings dated from March 25 and April 15, 2020, allowed for the suspension of deadlines and due dates by creating a “legally protected period” until mid-July. The objective was to limit litigation and lawsuits during the lockdown. After this moratorium ended, there was therefore a danger that pending cases and disputes would accumulate, including registrations, regulations, pleas and the execution of obligations.
With the return to work, the companies who saw their business partially or fully closed during the lockdown will have to deal with a new threat in the form of late payments from their customers. There are currently an estimated 13 billion euros in pending invoices (out of 700 billion euros in trade credit), according to the Banque de France. These sums can often make the difference between survival and bankruptcy for thousands of small- and medium-sized businesses, who rely on their cashflow to continue operating. The bankruptcy of one of the system’s stakeholders could lead to a series of closures – and struggling customers unable to pay their debts will automatically pass on the risk to companies they have worked with.
Risks inherent to GBLs
On March 16, 2020, the French president announced the launch of a massive support program for companies in the form of cashflow advances – government-backed loans, or GBLs. A budget of 300 billion euros was defined. Credit institutions were reassured by the government’s involvement and encouraged to lend generously at low rates not exceeding 2.5 percent. This assistance package should enable companies to deal with the losses caused by the public health crisis.
GBLs must be reimbursed within six years. If borrowers are unable to pay at the end of this period, the government guarantee is activated and creditors can claim a fixed sum between 70 and 90 percent of the amount lent. However, given that not all of these loans will be reimbursed, uncertainty remains as to the volume of risk and the government’s ability to guarantee repayment.
Understanding risks while preserving customer relations
However, these risks are not inevitable and it is still possible to adapt and ensure sustainable economic recovery. For banking management and financial services departments, this implies rethinking customer relations and optimizing solutions by taking borrowers’ potential repayment difficulties into account.
- Reinforcing communication with customers
Even before considering debt collection, it is advisable to focus on optimizing customer data. It may seem obvious, but sending invoices and payment reminders to the right people will save time and increase your chances of being repaid. This involves rigorous, precise data collection, including postal addresses, phone numbers and email addresses.
A solid database will then enable you to digitize your payment reminders while multiplying and diversifying the communication channels within debt collection strategies (SMS, email, etc.). New technology can be used to shorten negotiation times and payment deadlines – the latter of which can be facilitated by the introduction of direct debit, transfer or existing digital methods such as online payments.
- Automating data processing
An increase in volume must be accompanied by the development of flow and payment management, as well as the automation of the lifecycle of each case from opening to closure, underpinned by a customized, event-driven debt collection strategy.
Having a comprehensive vision of risk exposure is also essential.
In order to optimize the efficiency of payment reminders, you should communicate clearly and directly with your customers. Everyone is affected by the crisis and financial difficulties are no longer a taboo subject. Opting for a simple and rational stance, showing understanding, and providing education-focused assistance seems to be the most productive strategy for preserving long-term customer relations while considering better days to come.