Seminar Late Payments Octobre 2012

2 Table of content Late payments: Some facts What are the reasons for late payments Recommendations Choose an appropriate collection process

3 Late Payments: Some facts -In 2012 almost 3% of European receivables will be written off -Write off is representing +/- 340 billion EUR = debt of Greece -There is a big difference in payment behavior of debtors between the north and south of Europe  Southern Europe: B/B invoice paid after +/- 90 days  Northern Europe: B/B invoice paid after +/- 33 days  Belgium: B/B +/- 54 days  Public: +/- 75 days - Late payments are impacting directly Liquidity of companies resulting for some companies in bankruptcy

4 Late payments: What are the reasons?

5 Liquidity Problems: Recommendations  Systematic screening of customers portfolio  Monitor industry information  Define limits pro customer (concentration risk)  New customers: cash advance / cash against delivery  Perform annually a financial analysis of your key customers

6 Disputes: Recommendations  Align internally with all departments involved: credit management is not only a concern for finance  Sales department  Production and purchasing department  Finance department  In some cases CEO  Keep your promises  Solve all disputes before maturity date of invoice

7 Process (in)efficiency: Recommendations  Describe the entire invoice and collection process  Lean the invoice / collection process  Invoice immediately  Centralize collection process  React immediately when an invoice is overdue  Benchmark your working capital KPI’s with your competitors

8 Proces (in) efficiency: Benchmark your company  Select a few of your Belgian competitors  Download their financial statements  Analyse their statements and benchmark the working capital KPI  Most banks can help you with the benchmark

9 Page 9 Benchmark your company Rentability, Liquidity, Solvability of your Company is calculated

10 Page 10 Benchmark your company

11 Page 11 Benchmark your company Sensitivity analysis of cash convercion cycle

12 Page 12 Benchmark your company Improvement of DSO with 3 days is generating 42’ EUR

13 Debtors paying intentionally to late: Recommendations  Try to choose a collection method where YOU as creditor are in control - Factoring - Cards - LCR (Some European Countries) - Letter of Credit - Direct Debits

14 Payment method: Sepa Direct Debits

15 Direct Debits in Europe: Some Facts Direct Debits Cards Credit Transfers Cheques Direct Debits often used in some european countries

16 European Direct Debit : General  Payment instrument that can be used for domestic and cross-border collections  Applicable in SEPA countries (EEA + Lichtenstein, Iceland, Norway, Switzerland & Monaco)  Will replace as from 01/02/2014 all domestic schemes (Bel. Dom 80)  One Single format (XML 20022)  Two schemes possible: Core and B/B

17 European Direct Debit : Advantages

18 European Direct Debit – 2 Types Dom80 PSD compliant Domiciliation Européenne Standaard (Core) Domiciliation Européenne BTB UtilisationDomestique (BE)Domestique (BE) + International (scope SEPA) Gestion des mandats Banque du débiteur Créancier Référence des mandats Attribué par la banque du débiteur Accordé par le créancier N° de créancier Attribué par la BNB Attribué par la banque du créancier FormatCIRIXML Refund8 sem. / 13 mois (non-autorisé) 8 sem. / 13 mois (non-autorisé) Pas de refund Type encaissement Récurrent uniquement Récurrent & unique =

19 Payment method: Letter of Credit

20 Letter of Credit: Advantages / Disadvantages for exporter

21 General Remark: Impact late payments on internal rating Increase of Accounts receivables Indication that internal processes Are not under control at client side Impacting negatively Probability of default Deterioration of internal rating Increasing Risk Premium Impacting Negatively Funding Cost

22 Thank You for you attention Dany Delmeire ING Payment and Cash Management