In the course of its activities, an association uses varying degrees of financial resources. In the event of a cash surplus, it may even invest this money, without infringing the law of 1901, which authorizes it to make profits, and without losing its non-profit status.
Handling relatively large sums of money is not without consequences. Focus on the 5 biggest financial risks, pitfalls and challenges that can threaten the very existence of an association.
Failure to pay contributions
A membership fee is a sum of money that a member usually pays annually to an association. Membership fees are not compulsory, except in the case of legal provisions (fishing, hunting, etc.). The by-laws or internal regulations stipulate whether or not a membership fee is payable. The amount is generally freely determined by the management. In this respect, it would be unwise to mention it in the articles of association, as any change would necessitate amending them, with all the attendant costs. What's more, in the event of unforeseen expenses, it's best to have the option of increasing the membership fee, even temporarily.
A membership fee that's too low can hinder the association's development. If equipment can't be replaced, or activities become rarer, members' involvement is likely to diminish, leading to abandonment. It's at this point that the association's very survival is jeopardized.
On the other hand, excessive fees can deter new members, lead to a drop in membership or simply result in unpaid bills. In all cases, financial losses can have damaging consequences.
Late payments to suppliers
Suppliers often grant payment terms to companies and associations alike. These terms are agreed between the parties and are capped at 60 days from invoice date or 45 days end of month. However, when payment deadlines are exceeded, late payment penalties apply.
An initial flat-rate indemnity is set at €40 to compensate for collection costs. More severe penalties may be imposed, especially as the French government has stepped up its policy of combating late payment in recent years.
To avoid additional costs, it's best to manage these expenses properly. To do this, you need staff, time and enough cash to pay your bills on time.
One of the main causes of late payments is the complexity of processing supplier invoices. That's why electronic invoicing will be mandatory from 2024. However, not all structures will be affected in the same way. Associations not subject to VAT will be exempt from this obligation. Those with annual revenue of less than €73,518 will only be required to transmit transaction data to the authorities (e-reporting). Lastly, profit-making associations subject to VAT will fall within the scope of e-invoicing.
Bad investments
Times are not easy for associations. Public subsidies are dwindling, voluntary work is less attractive and managers are taking on increasingly heavy responsibilities.
Faced with this situation, and sometimes simply to maintain the same purchasing power, they may be tempted to invest in financial products. This practice is not forbidden, as long as it does not become a goal in itself. The security of the investment is more important than its profitability. It is also important to ensure that the money invested can be recovered quickly and easily. Last but not least, the taxation applicable to investments must be taken into account.
SICAVs, FCPs, stocks and bonds - stock market investments are possible, as are less risky non-stock market investments such as passbook accounts, Livret A savings accounts, etc. Be careful, however, as a lack of caution or market knowledge can result in substantial financial losses.
Difficulties in collecting subsidies
An association, which by definition cannot generate a profit, is obliged to find sources of financing, preferably without risk.
One possible solution is subsidies. A subsidy is financial assistance provided by a government body, local authority, public institution or other organization. As long as the association can demonstrate that it is in the public interest, and is registered, it is eligible for these grants.
However, the subsidy request must be aimed at contributing to the development of activities, and the association's project must involve carrying out an investment project. The public funding body alone has the power to decide whether or not to grant a subsidy, without having to justify its decision.
Fraud and theft
Fraud and theft can also occur in the associative sector. To combat these dishonest practices, which are on the increase, we need to secure our financial operations.
Clear procedures must be put in place at treasury level to answer the following questions:
- Who has the power to bind the association to a contract?
- Who can pay on behalf of the association? What are the charges and methods of payment?
- How are volunteers and employees reimbursed?
- Who controls cash receipts and what are the control rules?
This list is not exhaustive and must be adapted to each structure.
Another way to combat fraud is to separate tasks. Everyone must have a clearly defined role. For example, the person in charge of entering supplier invoices will not be the one to pay them.
In any case, regular cash flow monitoring by management is essential. In this way, abnormal bank movements can be spotted. It is also strongly recommended to limit cash handling.
