During the months of health crisisthe public aid of enterprises is mainly manifested for the general public through State Guaranteed Loans (PGE), to such an extent that the number of parallel measures put in place by the government seems to have been overshadowed.
Or, many other accompanying levers were essential to the survival of the French economic fabric. This is particularly the case for credit insurance supplements (CAP) which have equally preserved the companies from the balance sheet.
Credit insurance, a pillar of cash in times of crisis
Credit insurance it is a key mechanism in managing a company’s finances to the extent that it provides a guarantee against customers’ payment errors. This is most often compounded by factoring, which finances the operation: subsidiaries of banks buy back the invoices payable by customers and advance 90% of them to the company, the time of the payment period (60 of days). ). These two tools made it possible to ensure an inflow of cash while waiting for the regulations to deal with both the risk of lack of liquidity and the possible bankruptcy of debtors.
This mechanism thus constitutes a shield essential in times of crisis. Or, exposure to cash flow risks increasing with the degradation of the economic context In early 2020, some companies will refuse these guarantees due to the high degree of uncertainty surrounding global economic activity. The state then released an envelope of 12 billion euros to provide credit insurance and allow them to continue to believe in real savings.
This device is coming to an end today, but the risks remain significant. As such, credit insurers now choose to take over from the state and continue to cover risk on their balance sheet, sometimes with a lower level of exposure. This leads to vulnerability of the most vulnerable companies.
Financial directions always under pressure
At the end of the health crisis, a new wave of difficulties is opening up, when companies that have contracted a PGE have to start refunds. Many structures that have already lost revenue during the crisis are now in pay off debts they did not have before. Added to this is the Russian-Ukrainian war, and with it the rise in commodity prices, the rupture of supply chains and inflation around energy prices.
Financial directions are de facto deadlocked, prices are stagnant debt repayments, the disruptions caused by the international geopolitical situation and the growing pressure from insurers in the face of ever-increasing exposure to risks. Invoice management, des payment terms and so cash becomes a real balancing act.
Several solutions available to Daf
Despite this alarming context, however, the financial directorate has several levers of action. As a result of rising credit insurance prices and declining guaranteed outstandings, it is indeed possible for executives to compete with their credit insurers. This decision has little impact on the business and can be done relatively quickly. The re-competition of the insurer is thus likely to allow a revision of its positioning and a reduction in prices. In what sense, companies have everything to gain from mobilization internally their teams and to invest time on theoptimization of their contracts.
Also, companies with pot factoring financing are turning to their factor. In the cases where the financial health of the company remains strongthe factor can acceptprovide cash beyond its own risk coverage and therefore to protect more broadly the company cash. However, this is a case-by-case solution, requiring cash guarantees of viability, rather than the nerve of war in times of turmoil.
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© Marc BERTRAND
Adrien de Rufz is Senior Manager, Financementd’actifs, Restructuring & Turnaround Transformation activities at KPMG France. He advises companies in setting up or renegotiating asset financing programs, especially in factoring and securitization, in various contexts: business growth, replacement of short-term and off-balance sheet lines, mergers / LBO, refinancing, cash flow, class action. He also intervenes on credit insurance issues that he puts at the service of factoring in order to optimize financing.