France collection profile

 

France
       

France

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2014: 38/189 countries
2013: 35/189 countries
 
 


Complexity of collecting debt:

grading
notable Significant Major Severe


Executive summary

  • The payment behavior of domestic companies is good but does have some margin for improvement as the average DSO does not match the standards set forth in recent regulations stringently transposing EU payment standards into domestic law.
  • French courts are fairly efficient in dealing with disputes in a timely manner, however once the debtor is declared insolvent it becomes extremely difficult to enforce a debt because French law protects the debtor company as long as the insolvency proceedings are not terminated.
 
General Information GENERAL INFORMATION arrow-transparent
 
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
 
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
 
General Information

GENERAL INFORMATION

Days Sales Outstanding (DSO)

The law of 2012 (loi n° 2012-387 du 22 mars 2012 relative à la simplification du droit et à l'allègement des démarches administratives) which transposed the Recast Directive 2011/7/EU into French law came into force on January 1st, 2013, and replaced the Law on the Modernisation of the Economy of 2009 (LME) which partly transposed Directive 2000/35/EC. The LME aimed at reducing payment periods from 90 to 60 days (from the invoice's issue date) or 45 days (from the last day of the month) and allowed some 35 industry derogation agreements providing for more flexible conditions. Under the 2012 regulation, by contrast, payment in business-to-business transactions shall now occur within 30 days following the delivery of the goods or services but, where contractual agreements stipulate otherwise, the payment terms may be extended to 60 days following the issuing date of the invoice. In practice, payments occur within 61 days on average against a previous average of 70 days, showing a positive trend in payment behavior and volatility over recent years.

 

Late payment interest

Interest on late payment may be charged to the debtor provided that the applicable interest rate is indicated within the contractual agreement (15% per annum would seem acceptable), although the European Central Bank's interest rate (reconsidered every six months) increased by 10 percentage points may be applied automatically if the parties fail to do so. Beware: failure to mention these legal requirements in invoices will expose the creditor to criminal prosecution and to a fine of up to EUR 75,000 or 50% of the invoice. In practice, in the amicable phase, interest is collected and negotiated when a payment plan is set up. Otherwise, when the debtor pays the debt, it is very difficult to convince him to pay interest. In the legal phase, interest and any other contractual penalty must be asked to the court. French law allows the court, if the debtor situation requires it, to postpone or spread the payment over up to two years (‘délais de grace’ as provided under Article 1244-1 of the Civil Code).

Since January 2013, a recovery fee of EUR 40 may furthermore be applied. Additional compensation may also be claimed if the effective collection costs are higher than the flat sum. Failure to mention the EUR 40 flat fee in contractual payment terms would expose the creditor to a potential fine of up to EUR 15,000.

 
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collection practice

COLLECTIONS PRACTICES

Orchestrated negotiation first

Although French courts are reliable, it is advisable to first consider amicable settlement opportunities as an alternative to formal proceedings. Before starting legal proceedings against a debtor, in addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt.

 
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Court Proceeding

COURT PROCEEDINGS

Commercial Courts (Tribunal de Commerce) are responsible for dealing with business disputes. This jurisdiction is operated by non-professional judges elected by their peers, and it is overall efficient in rendering decisions in reasonable delays.

Various proceedings are available. When the debt is fairly modest and undisputed, it is first possible to seek a Payment Order (injonction de payer) from the Commerce Court. These fast track proceedings are cheap (less than EUR 75, in exclusion of bailiffs' fees) and efficient, presence in court is not required and a lawyer (avocat) is not necessary. The Judge may then deliver a formal Payment Order (ordonnance portant injonction de payer). The debtor must be informed of this decision within six months and has a month to contest it. If not, the Order may usually be enforced directly with a bailiff. When the debt is undisputed but the amount at stake is significant, 'référé' fast-track proceedings are also very efficient insofar as they allow obtaining judgments (ordonnances) without delays. The judge's decision is enforceable immediately even though part of the dispute remains to be settled through an ordinary lawsuit. Ordinary proceedings (Procédures au fond) are rather reserved to disputed and complex cases. Lawsuits are initiated by serving summons (assignation) on the defendant through a bailiff (huissier de justice) prior to filing the claim with the court. The court then considers whether the claim is receivable (mise en état), focuses on the parties' evidence and opinions through hearings (audiences), and then reaches a decision. If the defendant fails to file a defence, a default judgment may be rendered ex parte on the basis of the claimant's arguments. Provided that the debt is undisputed, the courts are finally competent to issue European Payment Orders enforceable in all European Union countries (except Denmark) without exequatur proceedings (Regulation 1896/2006/EC).

 
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insolvency Proceeding

INSOLVENCY PROCEEDINGS

Insolvency (état de cessation de paiements) under French Law refers to a corporation's incapacity to meet its (currently) due debts with its (immediately) available assets. The rules applicable to firms facing economic difficulties are contained in the Commercial Code, which provides multiple opportunities to open preventive procedures or collective procedures. On the one hand, preventive procedures called 'Mandat ad hoc' or 'conciliation' is confidential and would only concern a limited amount of creditors or suppliers. On the other hand, collective proceedings may be opened against companies facing difficulties in overcoming economic difficulties (safeguard) and against companies in a permanent state of insolvency (judicial reorganization or liquidation). Clearly, opening safeguard, recovery procedure or liquidation results in the suspension of individual prosecutions and a prohibition on paying claims. It may be added that Article L.631-1 of the French Commercial Code stipulates that the purpose of insolvency procedures is to allow the follow-up of the company’s activity, to maximize employment preservation, and to reduce the debtor’s liabilities. The later point, that is, comes last in the priority list. Numerous procedures are available depending on the company's financial situation and on the parties' expectations.

 
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