LME Act, payment terms

The LME law, or Loi de Modernisation de l'Économie, which came into force on August 4, 2008 had objective was to to stimulate the economy in France. The reduction of of payment and inter-company credit is one of its key measures.

Judged to be too long, the payment period of invoices tends to slow down the economy and and is not without impact for SMES.

In order to continue their activities, these companies are obliged to borrow cash flow. The LME law intervenes in this context to avoid VSE/SME and self-employed to suffer from this practice practice of extending payment terms.payment terms..

LME Act: the different payment periods

The payment term defines the number of days you have or of which your customer has to pay for goods or services. The article L441-6 of the commercial code fixes and limits the payment terms between companies:

• Without prior agreement between the parties, the payment term is 30 days, starting from the date of completion of the service or receipt of the goods.
• If a negotiation a the payment term is set at 45 days end of month, following the date of issue of the statement.

In any event, payment may not exceed 60 calendar days calendar daysfrom the date of issue of the invoices. invoices.

It is important to note that the calculation of the 45 days end of month is not prescribed by law. You are therefore free to make your own calculation. However, to make it simple, you can either add 45 days to the end of the month in which the debt was issued, taking the last day of the month as a reference, or add 45 days to the date of issue and go to the end of the month.

In order avoid any the method of calculation must be determined in advance of any billing.

Let's take two examples of calculations for the 30-day payment:

Example 1: A statement received on Thursday, October 17, 2019 must be paid by Monday, November 18, 2019 at midnight. A count that Monday, October 17, 2019 is not included. We add 30 days, so the payment must be made on November 16. Yet November 16 and 17 are a Saturday and Sunday, respectively. Therefore, payment must be postponed to the first business day, Monday, November 18, 2019. The payment deadline will end on Monday, November 18, 2019 at midnight.

Example 2: Receivables are received on Monday, October 14, 2019. They are due on Thursday, November 14, 2019 at midnight. Monday, October 14, 2019 is not included, we add 30 days, which brings us to Thursday, November 14, 2019, a business day. Therefore, the payment period will end on that date at midnight.

To avoid any dispute, it is recommended that the following information be included on the manner how the invoice is to be paid rates of late payment penalties, the general terms and conditions of sale, the duration and terms of payment.

Payment terms between companies

Between professionals, the term of payment is, in principle, fixed at 30 days after the execution of the service or the reception of the goods. However, this period may exceed 30 days, without going beyond 60 days from the date of invoicing, if it is not specified in the contract.

However, there are specific time limits for certain sectors. Article L441-11 of the French Commercial Code defines the following specific deadlines:

• 45 days end of month or 60 days net from the date of issue of the invoice: musts and grapes used in the production of alcoholic beverages or wines subject to circulation duties (except for derogations)
• 30 days after the end of the delivery month: alcoholic beverages subject to consumption rights
• 20 days after the day of delivery: live cattle for consumption and fresh meat derived from them
• 30 days after the end of the 10-day delivery period: frozen foods, fish, frozen or deep-frozen meats, perishable food products, ready-made meals and preserves made from perishable food products (except for seasonal products acquired under integration contracts)

For the public sector, maximum payment terms between institutions have been defined since May 1, 2013:

• 60 days for contracting authorities, as stipulated in Article 3 of the Order of 6 June 2005
• 50 days for the armed forces health service and public health establishments
• 30 days for public institutions other than EPICs and for all contracts for the State

For the derogatory periods, the LME law has provided, by interprofessional agreement the implementation of extended deadlines.

This is how different professional sectors have concluded successive derogatory agreements.

These signed agreements are available on the Trade Practices Review Board website.

The principles governing the payment period

The payment term established by the LME law is based on principles, in order to simplify business-to-business exchanges as much as possible. Also, this principle takes into account the procedures to be followed for debt collection.

Payment with negotiated term

The choice between 45 days from the end of the month and 60 days calendar days is a matter of contractual freedom. The terms of payment and the method of calculation must be stated in the contract or the general terms and conditions of business. Since this is a maximum deferment, this period can be reduced by mutual agreement between the customer and the supplier.

In the event that the contract provides for a procedure of verification or acceptance of goods, it must be defined in accordance with commercial usage and good practice in the profession. This procedure must not exceed 30 days from the performance of the service or receipt of the goods.

Late fees

The general terms and conditions of sale must specify the interest rate and the conditions of application in case of late payment. If payment is made after the date indicated on the invoice, it is considered late.

The interest rate provided for in the General Terms and Conditions of Sale corresponds to the semi-annual key rate of the European Central Bank (ECB), in effect on January 1 or July 1, plus 10 points (10% for penalties due since July 1, 2019).

However, it may be lower than that, but not below the minimum rate of 2.52% (effective July 1, 2020).

It corresponds to 3 times the legal interest rate, i.e. 3 x 0.84%. It is applicable on the amount TTC of the account.

Allowance for collection costs

For any delay in payment, a fixed indemnity of 40 euros for debt collection costs is due to the creditor. It is only applicable to activities subject to the commercial code.

However, the indemnity is not applicable if the debtor is under judicial liquidation, reorganization or safeguard proceedings.

This lump sum is added to the late payment penalties, but is not included in the basis for calculating the penalties.

Exceptions to the legal time limits

Special payment terms are available for certain products, especially perishable goods such as beverages and food. The same applies to certain specialties such as seasonal sectors (toy trade, snow sports articles) and transport (goods transport, car rental).

Moreover, a new conventional deferment of payment is provided by the Sapin II law of December 9, 2019. This is a maximum payment period of 90 days from the date of issue of the invoice. This mainly concerns purchases made free of VAT. According to Article 275 CGI, these are "goods intended for delivery in the state outside the European Union".

Thus, purchases made by large companies are not affected, according to Article L441-12 of the Commercial Code, as issued by Order No. 2019-359 of April 24, 2019.

To go further, do not hesitate to contactr our lawyers experts in debt collection.