Late payment: Who pays for the damage caused? Cash is King, Part 5
In receivables management, customers and consumers often disagree about who has to pay the damage caused by default. The following article shows how this problem is solved in practice.
What if? Imagine: A debtor does not pay the receivables of a company operating in the mechanical engineering sector. This scenario fits the reality. Because according to a study by the debt collection company Intrum in 29 European countries, one third of Swiss SMEs are struggling with a drop in sales due to delayed payments. Who takes on the damage for this?
Clearly declare late fees
Back to the Example from part 1 of this continuation story: The equipment ordered for the finishing of roll material such as paper and metal foils has a value of around 200,000 Swiss francs.
- Since the debtor does not pay this invoice, Intrum recommends sending a free reminder 40 days after the invoice is issued.
- If payment continues to be outstanding, the manager should send the second reminder on the 60th day - subject to a charge of 30 francs - and point out the further consequences of late payment.
- If the bill remains unpaid on the 75th day, she should turn it over to a collection service provider. Consistent escalation can be critical to survival.
Conclusion: To ensure that companies are prepared for all eventualities, they should, wherever possible, transparently disclose the fees incurred in the general terms and conditions as well as in the second reminder. The contractual regulation is also in line with the recommendation of the Federal Council, which has taken a clear position on this issue as a result of the political initiatives. Consistent escalation is central to success. If the consequences are communicated transparently, consumers will not be irritated.
Which costs are subsumed under additional costs?
In the absence of a contractual agreement between the parties, the long-standing practice under Articles 103 and 106 of the Swiss Code of Obligations comes into play. These legal norms state that the creditor does not have to pay his default damages himself. Damages for default are understood to be a lump-sum fee that covers the average expense of the collection process. This includes, for example, costs for reminders, telephone calls, debt collection and garnishments. The creditor is therefore allowed to pass on this damage to the consumer (debtor) on the basis of who caused it.
The lump sum payment takes place according to the guidelines of the VSI (Collection Association) at the earliest after two reminders and 70 days after invoicing.
Paid at last: Here's what happens next
What should CEOs and decision-makers do when their customer has finally settled the outstanding receivables? What are the next steps they need to take? You can find out more about this topic in episode 6 of this continuation story.
Contact for more information: Intrum Inc, sales.ch@intrum.ch, +41 44 806 85 57, www.intrum.ch