Delays and Payment Defaults: What to Do?

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Delays and Payment Defaults: What to Do?

In Summary

Concerning for a business, delays or payment defaults generally weigh more heavily on the cash flow of SMEs than on that of large groups. Summary of the main steps to take when faced with an unscrupulous client.

Problems related to payment delays are a reality for 83% of Swiss companies surveyed in 2021 by the Intrum firm (see the box). However, the economic difficulties linked to the Covid-19 pandemic are not necessarily responsible, emphasises Jürg Rösti, professor at the Fribourg School of Management. "The efforts made at the federal level mean that most companies have managed to pay their suppliers and the number of bankruptcies decreased in 2020 and the first half of 2021." For SMEs, the concern is justified, according to Eric Muster, lawyer for the Lausanne firm Rusconi&Associés and specialist in debt enforcement law. "SMEs have less cash flow and their activity often depends on one or two main contracts. If a payment problem occurs on one of these, their situation can quickly become complicated."

VULNERABLE

SMEs are not the only companies facing unscrupulous payers, but the nature of their activities makes them more vulnerable, believes Jürg Rösti. "This is particularly evident in certain sectors such as online or mail order sales, where there is little information about buyers. The risk is lower with a local or regional clientele, whose reputation is easier to assess." How to react to a bad payer client? "Starting with a simple reminder is wise," says Jürg Rösti. "The explanation may be very simple. A phone call costs almost nothing and allows you to learn more." If this yields nothing, another low-cost step is to send one to three reminder letters.

FORMAL DEMAND

"The usual practice is to start with a formal demand letter," explains Eric Muster. "If payment does not occur, one can then approach a lawyer or a specialised firm to submit a debt collection request to the competent Debt Enforcement Office." The procedure can also be done via the online portal for businesses EasyGov.swiss. The debt enforcement office sends the debtor a payment order which they have ten days to contest. If not, or if a court order compels them to lift the objection, the creditor can file a request to continue the enforcement and thus begin the actual recovery procedure. A complex process, warns Eric Muster: "the process can take months, even years, especially if you do not have an acknowledgement of debt from the debtor."

CLIENTS ABROAD

If the bad payer is not located in Switzerland, the procedure is obviously more complex. "If your debtor is, for example, based in Paris, the procedure must, except in exceptional cases, be conducted before the French courts," points out the lawyer. "If the amounts involved are significant, it will be long, but seizure procedures work quite well in countries like France." For small claims in a distant or crisis-stricken country, it is not necessarily worth the effort, according to Eric Muster, who regularly advises some clients to abandon their claim and calls for a certain pragmatism. "If the procedure you initiate costs you more than the claim you want to recover, it is not necessarily worth it."

ACTING UPSTREAM

To protect against a delay or, worse, a payment default, it is advisable to act upstream, explains Jürg Rösti. "Knowing your clientele well is essential. There are fewer problems with companies you have worked with for a long time. The risk is more obvious with a new partner." Eric Muster recalls some good practices: it is easy and inexpensive to verify that the client actually exists or that they are registered in the Swiss commercial register, for example. If the client is Swiss, requesting an extract from the debt enforcement register allows you to know if the future contractual partner is already involved in litigation. This is anonymous and costs only eighteen francs. However, this database is not public and you must justify an interest to obtain it, such as pre-contractual steps.

AN IMPERFECT TOOL

Effective, the tool is nevertheless not perfect: the register is established at the district level. If an unscrupulous company moves to another canton, the information concerning it does not follow. Another limitation: it takes time and a company selling its products to a large number of clients can never check everything. The simplest is then to go through companies specialised in analysis and recovery. A final useful reflex: "request a deposit and condition delivery on its payment," suggests Jürg Rösti. A double-edged sword, as a prospect may refuse and turn to another supplier. As often, it is primarily a risk calculation.