Magazine article Business Credit

Credit Management in France: What You Should Know before Doing Business with French Companies

Magazine article Business Credit

Credit Management in France: What You Should Know before Doing Business with French Companies

Article excerpt

France's position makes it a lucrative European country in which to do business; it's surrounded by several economic and cultural borders each very different from one another. This diversity appears in several economic and intercompany credit risk behaviors as well: for instance, French companies are isolated from payment behaviors of southern Europe while the majority of French institutions used for credit risk management (INSEE as the business statistical institute, INPI for brand registration, balance sheets and trade register place, trade court clerks, etc.) show a proclivity for both preventive and curative credit management support. Here is some very basic advice for any exporter to France.

The number of firms in France is large: INSEE, the National Institute of Statistics and Economic Studies (www.insee.fr) counts about 6.4 million entities. The creation of new entities is around 300,000 new businesses per year. However, almost 50 percent of them will disappear before the end of their fifth anniversary, either by voluntary activity cessation (73 percent) or by the launch of a bankruptcy proceeding.

Business failures reached more than 49,000 cases for 2005. According to a study of INFOGREFFE (Court Clerks network of 185 Trade Courts in France, www.infogreffe.fr, English version available), almost two thirds of those bankruptcy proceedings had been direct liquidation proceedings. The failures by receivership proceedings (34 percent of the business failures) ended with 90 percent of cases being converted to liquidation proceedings.

Informal intercompany short-term credit is very high in France and long payment terms as well as delays of payment imposed on suppliers are very often an immediate and pragmatic answer to short-term financing needs. INSEE evaluates this existing intercompany credit at around 400 billion, while the bank's total financing to companies is only 160 billion (source: INSEE no 05-A-17 of September 22, 2005) and contributes only 40 percent to the whole financing needs faced by companies in France. Moreover, average payment terms in France are around 65 days; which does not include the average payment delay of 12 additional days--meaning payment is typically not received for 77 days.

Last but not least, you have to be aware of French regulations if you wish to deal with a French business entity. Keep in mind that regulations implemented in France over the last 30 years are mainly debtor protection-oriented.

* The debtor, as a private person owing a debt, is protected by all the existing regulations pertaining to personal debt status. Often, the creditor (i.e., supplier) is obliged to abandon part of the regularly owed amounts by the debtor, only because French institutions like "Banque de France" decide that the debtor insolvency seems to be irreversible. A new law in 2003, defined as "le retablissement personnel" (personal reinstatement), created a kind of private liquidation proceeding as soon as the installment payment plan fails; and one of its major effects is to withdraw immediately and definitively the partial or total value of the remaining debts.

* The company's debt status might benefit them. January 2006 marked the first of a whole new package of bankruptcy proceeding regulations like the "Conciliation" or "Sauvegarde" (company safeguard proceeding). These new proceedings take place prior to the more traditional receivership and liquidation proceedings. They are inspired by the U.S. Chapter 11 proceeding, and are in favor of the firm facing serious but not irreparable financial difficulties, either by implementing a confidential process (conciliation) or by defining as an opening criteria the not yet existing payment suspension situation as soon as serious financial difficulties are faced (company safeguard).

Basic Principles To Be Followed By Any Exporter To France

Credit Management: Preventive Client's Risk Approach

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