Cash problems: the 10 mistakes to be avoided

  • Expert opinions

Faced with cash problems, the finance manager may give in to certain reflexes that can expose the company and its officers to danger. We list below the 10 mistakes often committed by our clients and provide advice as to how to avoid them.


1 – Mistreating your suppliers

The company’s strategic suppliers and longstanding relationships are often the first to suffer in the event of cash problems. Payment periods are lengthened and suddenly anything goes: cheques are only issued after the third demand; the finance manager is often “on holiday” etc. But to mistreat your suppliers is to forget their essential role in the company’s value chain: they may refuse delivery, block production, hit your sales and above all, they are in contact with the credit insurers who are liable to receive lots of bad news and thus reduce their recommended credit limits…


2 – Failing to pay payroll contributions

Every employer has the duty of paying its own and its employees’ payroll contributions as they become due. Any failure to pay on employees’ payroll contributions will automatically be analysed as a fraudulent offence albeit non-payment of the employer’s contributions may be tolerated. It is far better to prepare a request for payment facilities to be submitted to the CCSF (Commission des Chefs de Services Financiers), the URSSAF social security institution’s appeals body.


3 – Understating your VAT returns

Cash difficulties may never be invoked as an excuse for understating your VAT returns, since that will automatically also be analysed as a fraudulent offence. In contrast, it is possible to make correct returns but request payment facilities from your Service Local des Impôts des Entreprises (SIE) or eventually from the CCSF as above.

> Further details on the CCSF’s role with regard to companies in difficulty (in French)


4 – Delaying the payment of salaries

Cash problems cannot justify any significant delay in paying your company’s salaries. Aside from the legal issues involved, delaying the payment of salaries runs the risk of strongly deteriorating your company’s social climate, demotivating your staff, stimulating absenteeism and eventually creating social conflict which can only further worsen your company’s financial position. Paying your company’s salaries and payroll contributions on time must remain a priority. Your employees are the essence of your company and it should be unthinkable not to keep paying their salaries at the top of the list.


5 – Cutting off contact with your statutory auditor

Cutting off contact with your statutory auditor is a frequent error despite the fact that the statutory auditor has an ongoing duty of verification that the company remains a going concern. The duty to alert and the annual statutory audit constitute dual and different obligations that the statutory auditor discharges in parallel and sometimes simultaneously. On the one hand, the statutory auditor may exercise his or her duty of alert by informing all the company’s partners – from its officers to its shareholders and including its works committee and the President of the competent commercial court – of the company’s difficulties. On the other hand, the same statutory auditor may refuse to sign off on the company’s accounts in the event of any material uncertainty e.g. when the maintenance of a going concern requires the achievement of certain conditions such as obtaining new credit facilities or important orders etc. It is thus in the company’s interest to communicate confidentially with the statutory auditor at the first sign of financial fragility: far better to provide the statutory auditor with measured information, with the aim of resolving the initial difficulties, than to risk having to manage the fall-out from uncontrolled communication with employees, suppliers and financial partners…


6 – Not returning your bank manager’s calls

Your company’s bank is a privileged interlocutor who cannot fail to notice any growing recourse to credit facilities, URSSAF seizures, payments rejected etc. Your banker must be associated with the company’s projects even if they are going to take the form of restructuring.


7 – Imagining your employees are not even aware of your cash problems

The employees involved in warehousing, in receiving goods or in paying suppliers are perfectly knowledgeable as to the company’s financial state of health.


8 – Continuing to believe that you can “sort it out” (by selling off assets rapidly and at high prices, by obtaining new contracts etc.)

In the presence of cash problems, directors often have blind faith in the order that’s going to save them or the financial deal that will put everything right. Optimism is key to entrepreneurship but must not transmute into denial of financial difficulty.


9 – Preferring the status quo on the basis that you’ve provided personal guarantees

When difficulties that arise are managed at an early stage and in all transparency, personal guarantees may be eligible for freezing so there is a real interest in making use of the available procedures for preventing difficulty so as not to expose directors unreasonably.


10 – Going it alone without professional help

When the company encounters difficulties, the directors may be tempted to hide whereas by constituting a crisis team, they may be able to cope very quickly with the whole range of issues. The typical crisis team will include a specialised lawyer, a specialist in crisis financing and eventually a judicial administrator acting as an ad hoc trustee or mediator; its purpose is to provide the company’s management with the best possible advice as to the urgent decisions to be taken, thereby enabling management to free up time to be devoted to reflecting on the company’s long-term strategy and commercial relationships.