Outsourcing international debtor management with credit insurance safeguards the profit margin and limits the risk of insolvencies.
Patrick Van Eyken, Sales & Marketing Director, Fortis Commercial Finance, explains.
The payment practices of international debtors are steadily worsening. In over 20 European countries, the payment term has increased by an average of seven days. Barely half of all companies pay their invoices on time.
"The payment period requested is shrinking while the arrears on payment are rising throughout Europe. The average claim period is increasing. However, deferring payment by barely seven days can cause a company's financing requirements to increase by half. "
For instance, a company obtains a 60-day deferral of payment from its suppliers. However, the customers pay at 67 days, a difference of seven days. If the customers pay on average seven days later and suppliers still have to be paid at 60 days, then the company faces financing requirements of 14 days, as against seven days previously.
Solvency and risk management
The number of bankruptcies in the countries of the European Union is increasing, as well. The national regulations on bankruptcies, composition and judicial arrangements are not at all harmonised.
"Sometimes it is difficult to detect the bankruptcy of a foreign payer. A reliable debtor management partner, with a proven international network and local expert debtor management, provides greater certainty."
Due to Basle II, banks are becoming more risk-aware. When it comes to granting credit, they attach greater importance to sound risk management on the part of the company. Credit management is no longer a luxury.
"The Days Sales Outstanding (DSO) standard is becoming increasingly popular. This provides the ratio of claims to annual turnover. DSO determines how many days it takes for sales to be converted into cash. Not only the amounts to be collected, but also the debtor management approach are decisive for a favourable DSO."
Debtor management at Sibeco Group
Sibeco Group, a chemicals trading and production company, records growth of between 25 and 30% per year.
To be able to grow quickly and above all safely, Sibeco Group decided from the start to outsource as much as possible. The company takes care of product development, purchasing and sales itself. The rest is sub-contracted.
The company records a turnover per employee twice that of the sector average. So inevitably, debtor management is pushed into the background. Hence the outsourcing of all its international debtor management to Fortis Commercial Finance.
First of all, Sibeco Group wants to optimise its working capital. One of the aims is therefore to shorten the payment term by means of careful debtor management.
The chemicals groups deliberately does not want invoice financing, as with a traditional factoring solution
"Sibeco Group calls upon a wide-ranging service package from Fortis Commercial Finance. On the one hand, this includes credit insurance from a reinsurance company for which Fortis Commercial Finance acts as intermediary. On the other hand, the package comprises the outsourcing of the entire international debtor management."
A customised invoicing service for Sibeco Group
Sibeco Group sends out the invoices itself, on its own letterhead paper.
A copy of each invoice is sent to Fortis Commercial Finance, and they take over the entire follow-up and collection process, including telephone and written reminders.
Foreign debtors pay into a foreign account with Fortis Commercial Finance.
The amounts are repatriated daily to Sibeco Group's two banks.
If a non-payment exceeds the agreed period of ninety days after the due date, Fortis Commercial Finance informs Sibeco Group of this.
If the invoice is not covered by the Sibeco Group credit insurance, then the company begins the collection procedure itself.
Otherwise, Sibeco Group submits a claim to the credit insurer via Fortis Commercial Finance.
Fortis Commercial Finance
Fortis Commercial Finance (FCF) is part of the Fortis group. With a share of 60%, FCF is the biggest player on the Belgian commercial finance market.
At European level, FCF ranks tenth. The company operates in Belgium, the Netherlands, France, Great Britain, Germany, the Grand Duchy of Luxembourg, Italy, Poland, Spain, Portugal and Hong Kong.
In addition, FCF is also a member of Factors Chain International (FCI), the world's largest network of commercial finance companies. FCI has 166 members in 55 countries who act as correspondents for one another when following up foreign debtors.
