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Payment periods: use the legislation as the basis

by Denis Le Bossé, founder of ARC Cabinet.

Controlled payment periods are key to the proper management of a company. One in five bankruptcies are linked to a lack of cash flow.

The French parliament therefore introduced the NRE (new economic regulation), making late payment penalties mandatory and payable from the first day payment is late, which follows the date stated on the invoice. Payment periods are set at 30 days by France’s Commercial Code, and 45 days by France’s Public Procurement Code. In the private economic sphere, the average payment period is nevertheless sixty-six days (in France).

The strict application of the law is easy: no special reminder is needed. The amount of the penalty provided for by the Commercial Code is “equal to the interest rate applied by the European Central Bank to its most recent refinancing operation plus seven percentage points”; in early October 2007, it was 4% + 7% = 11%. Interest is payable from the day the customer has been ordered to pay by way of a bailiff, or by registered letter with acknowledgment of receipt restating the amount due, the date of settlement and the amount of interest.

Note: it is necessary to stipulate all this data, especially if there is no commercial agreement, in order for this to have a legal validity. The applicable legal interest rate is set for one calendar year by decree.

For the year 2007, the rate was fixed at 2.95% (decree of 19 February 2007). However, any company is free to set penalties and late payment interest rates as it sees fit, provided that they are clearly indicated in the terms and conditions of sale and on invoices. The rate for late penalties, contractually agreed, cannot be less than one and half times the legal interest rate. However, the terms and conditions of sale should be both realistic and enforceable.

In fact, the application of these penalties is rare, for obvious commercial reasons. It is estimated that only 15% of SMEs would invoice late payment penalties. However, the indication of penalties on your invoices is a deterrent, which is already a good point!