The latest “Debt CollectionPractices and Expectations”survey Cabinet ARC/IFOP reveals a climate of uncertainty among businesses, with concerns about their operations and a possible future economic downturn. A trend toward financial disengagement by banking institutions is also raising concerns among the companies surveyed.
Ongoing Concerns
A certain degree of concern persists among businesses regarding the macroeconomic outlook. In fact, more than two-thirds of executives express fears about a possible deterioration in the French economic situation over the next six months. This cautious attitude reflects the uncertainties that persist in the current economic climate. As for interest rates, more than one-third of companies (64%) anticipate a rise by the end of the year.
In addition, a large majority of companies (96%) believe that the economic situation could lead to an increase in bankruptcies. About one-third of them even anticipate a “significant” or even “extremely significant” increase, highlighting the growing challenges companies are facing.
This pessimism is also evident when it comes to business activity: 80% of executives do not expect their business to grow in the second half of 2024, and 16% of them even anticipate a decline.
A pullback by financial institutions
A large proportion of the companies surveyed perceive a growing disengagement on the part of banks toward microbusinesses and small and medium-sized enterprises (SMEs). In fact, 60% of business leaders state that banks are withdrawing their support for microbusinesses and SMEs. These companies believe that banks are providing them with less support, now prioritizing repayment of the State-Guaranteed Loan (PGE) over any other form of financial assistance.
Cash Flow Challenges
Companies highlight the cash flow management challenges their clients face. About a quarter of them believe their customers will be unable to repay their debts (government-guaranteed loans, payroll taxes, investments, invoices, etc.). In addition, 77% of customers are trying to meet their cash flow needs by extending payment terms with suppliers. Other strategies are also being employed, such as the use of bank overdrafts by nearly half of the companies.
97% of the companies surveyed believe that their customers’ payment terms have not improved, and 17% believe they have worsened during the first quarter of 2024. This finding is consistent with the statements made by the companies surveyed last September, 83% of whom believed that payment terms were likely to become the key adjustment factor for cash flow management in response to the crisis.
Reducing the payment term from 60 to 30 days
Businesses are expressing some reservations about the European Commission’s proposed measure to reduce the maximum payment term from 60 to 30 days. Although half of the businesses believe their customers will be able to meet this new deadline, the figures reveal mixed views regarding its expected effects. Only 26% of businesses believe this reduction could actually lead to a decrease in the number of bankruptcy filings, while 60% believe it will have no impact on late payments. This skepticism stems from the fact that a large number of companies are already experiencing late payments, even though the regulations implemented in 2008 are more lenient in terms of payment deadlines. In fact, only 50% believe their customers will be able to meet a maximum payment deadline of 30 days.
Despite widespread pessimism about the French economy and interest rates, there is a notable sense of resilience regarding the future of businesses. The trend toward banks scaling back their financial involvement adds another layer of complexity to cash flow challenges. The European Commission’s proposal to shorten payment terms has divided businesses, highlighting the need for nuanced approaches to address liquidity and solvency issues.
Denis Le Bossé, President of Cabinet ARC , comments:
“In a gloomy economic climate where microbusinesses and small and medium-sized enterprises (SMEs) continue to face a structural shortage of equity capital—leading to an increasing number of business failures—and where 68% of companies are convinced that the French economic situation will soon deteriorate, payment terms are becoming an increasingly critical issue. A very large majority (77%) still view payment terms as the primary means of meeting cash flow needs. And while most large companies follow sound practices and the “name and shame” strategy—which allows the government to publicly expose offenders—is intended to serve as a deterrent, some continue to use their dominant position to impose restrictive payment terms on their suppliers, given that the current maximum penalty is, financially speaking, negligible for them. In light of this situation, more than 70% of companies have clearly expressed the desire that fines imposed by the DGCCRF on companies that fail to pay their invoices on time be calculated as a percentage of those companies’ profits, thereby making the penalties truly impactful and effective.”
This study was conducted by telephone from April 17 to 29 among a representative sample of 200 companies with 50 or more employees.