Every business owner is at risk of facing unpaid invoices at some point. Therefore, it’s crucial to know the steps to take to reduce this possibility and to recover the amounts not paid by the agreed deadline with the client.

According to Coface, in 2023, 97% of French companies granted payment terms to their clients, with an average term of 48 days. Despite this, 82% of companies experienced payment delays in the last 12 months. The majority of them report that these delays have been longer and more frequent. This leads to a significant increase in business failures. To avoid ending up in this economic and legal deadlock, it’s essential to be very vigilant and rigorous throughout the business relationship with the debtor.

To effectively limit the risk of unpaid invoices, it’s necessary to define a strategy for managing and collecting unpaid invoices and to identify potential risk situations in advance.

Avoiding unpaid invoices through risk analysis When a new client requests credit from you, it’s essential to analyze their solvency. You can use the same methods as a banker who must evaluate a request for overdraft authorization from a business owner. Consequently, you should ask this new client to provide you with the following documents:

• their balance sheets and income statements
• the documents contained in their tax returns for the last five years
• their financing and cash flow forecasts

Next, you’ll need to analyze these documents, paying particular attention to the following elements:

• the level of equity compared to permanent capital and the total balance sheet. Equity should be at least equal to medium and long-term liabilities.
• the level of long-term debt compared to cash flow and the company’s self-financing capacity. The total repayments of long-term loans should not exceed half of the annual self-financing capacity.
• the working capital and working capital requirements. Working capital should at least cover inventory financing, and reliance on short-term bank credit and credit granted by suppliers should not be excessive.
• finally, concerning the income statement, you’ll need to check if the company’s activity is sufficiently profitable, if the company controls overhead costs, and if financial expenses do not exceed a reasonable percentage of operating income.

If your new client is a business creator, ask them to present their business plan and the opinion of the accountant to whom they must have presented their project.

Amicable management of unpaid invoices If a client does not pay by the agreed deadline, promptly send them a reminder letter. If this step is sufficient and if you have no concerns about their financial situation, you can continue the relationship without any issues. However, if the payment delay exceeds one month, there is a significant risk that your client is acting in bad faith or that their financial situation is not good. As a result, contact them by phone to try to negotiate. Ask them what reasons they may have for being dissatisfied with your service or what causes the delay in payment. Also, inquire with the Commercial Court to check if they have been subject to protest or privilege of the Treasury or a social organization.

If these steps and your negotiation with your client lead you to believe that their financial situation can improve, establish a protocol with them to enable them to pay their debt to you.

Legal procedures If you find that your client does not respond to your efforts or refuses any negotiation, a legal procedure is then the only solution. You can ask the President of the Commercial Court to issue an order for payment injunction. You will attach to your request the purchase order signed by your client, the invoice, and copies of the reminder letters and formal notice that you have sent to them.

Once the court order is issued, you must have it served on the debtor by a bailiff within six months. If the client does not object within one month, you can have the order made enforceable. You can also ask a bailiff to serve them with a payment order. Eight days after this step, you can ask the bailiff to search for the bank accounts owned by your debtor by querying the FICOBA file, kept by the Directorate General of Public Finances. This national file of bank accounts and equivalents lists all bank accounts opened in France: current accounts, savings accounts, securities accounts, etc. FICOBA also lists safe-deposit boxes rented in France. This access request is free. However, the access procedures are different depending on the person to whom the bank account concerned by the request belongs.Then, it will be possible to seize all sums deposited in the debtor’s bank accounts.