Spotlight: France's Repression of Delays in Payment
In France, 25% of bankruptcies are attributed to delays in payment. The lack of cash resulting from delayed payments and the cost of financing working capital requirement are deadly to companies, especially small and medium sized businesses. The effects on employment are, therefore, harmful. According to a study published in April 2015 and conducted by Jean-Noël Barrot and Julien Sauvagnat, compliance with the rules governing payment terms could generate more than 100,000 jobs in SMEs.
In view of this situation, the French authorities recently stressed the need to tackle delays in payment by adapting sanctions. Considering the potential consequences of infringements to the legal framework governing payment terms, companies have an increasing interest in paying in due time. If payment terms are a kind of inter-company credit, free of any cost, it nevertheless implies a responsibility, as a microeconomic practice can have a macroeconomic impact (a domino effect). That is the justification of this corpus of legislation.
The rules governing payment terms
In accordance with the French Code of Commerce, contractual parties have the right to agree on payment terms, as long as they don't exceed a cap. In principle, the creditor cannot be paid after 60 days from the emission of the invoice or 45 days end of the month. However, other caps exist and depend on the activity that has motivated the emission of the bill. These special delays are designed to protect certain professionals who may be deemed economically frail. For instance, the payment of a haulage contractor has to be done within 30 days after the emission of the invoice.
The procedure of sanctioning
Any payment done after the expiry of the time limit is an infringement. The law does not require this infringement to be deliberate: the lateness is legally enough, as it constitutes a disloyalty towards the partner. Once infringements are established, they are punished directly by the “administrative authority”, which is consists of authorities emanating from, or linked to, the Ministry of the Economy.
Before the 19th March 2014 (previous to the passing of a bill referred to as “Loi Hamon”), punishments were a consequence of a lawsuit initiated by the administration before the courts. The infringement was either looked upon as a civil or a criminal offense. As a result, the enforcement of the rules governing payment terms was made longer because of procedural delays. The incentive to comply with the rules was therefore not strong, as years could pass before a final ruling was made.
As this framework did not prove sufficiently effective, the government decided to change the way the punishment was carried out: first the administration punishes, then the company deemed to be infringing the law has the faculty to exercise an administrative remedy. The procedure of sanctioning is now swifter than before.
The new system is clearly an upheaval. In order not to damage the right of the defense, the new framework has come with procedural guarantees. One of the most important being the period of 2 months given to the company, after it has received a pre-notification of the sanction, to express its comments. The punishment can't be notified before those 2 months pass. Thus, as in a trial, the process entails a certain participatory and contradictory dimension.
The possible assessment of the sanction by a judge is another guarantee. Instead of being issued by a judge, the punishment can be quashed by one. As opposed to the previous sanctions, the new punishment is based on a decision from the administration; therefore, civil and criminal judges are no longer concerned with any litigation that may arise. The administrative order, with its special organization and procedural rules, is now the only one to provide the right to challenge the punishments notified.
The punishment
The punishment for infringing the rules governing payment terms is an administrative fine. The amount cannot exceed €75,000 for a person or €375,000 for a legal entity.
This can, however, be doubled in the event of a reiteration of the infringement within a period of 2 years. An accessory penalty can be decided: the publication of the sanction. This was introduced to “name and shame”, and mostly pushes companies to comply to avoid the risk of damage to their reputation.
This punishment could be intensified in the near future. A draft law is now being examined by the French parliament and, if approved, fines for legal entities could increase to €2 million. Furthermore, the publication of the sanction would be no longer an accessory penalty but a part of it - publication would be automatic.
In conclusion, France equipped itself with a new and efficient way to repress delays in payment. As of 15 November 2015, 110 sanctions have been issued, for a total amount of €3.5 million. The potential cost of infringements, both financially and in terms of reputation, should create a serious incentive to companies in order to pay their providers in due time, as creditors should not be denied a legitimate right.
