Creditors Beware - Time to Health Check Your Terms and Conditions of Sale & Invoicing Practices

by Reed Smith
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Introduction

Under Directive 2011/7/EU dated 16 February 2011, EU states had until the middle of this month to implement a number of measures to combat against late payment of invoices in commercial transactions, an area of law hitherto covered by Directive 2000/35/EC. The 2011 Directive repeals Directive 2000/35/EC with effect from 16 March 2013. In France, the implementing provisions for the 2011 Directive came into force on 1 January 2013.

The thrust of EU legislation in this area is to encourage debtors to pay on time, failing which they will be exposed to significant interest and other late payment costs. As implemented in France, it also presents compliance issues for sellers and providers of services in connection with their general terms and conditions and invoicing practices. Failure to comply can expose companies to criminal prosecution and fines of up to EUR75,000 or more.

Thus while it is always advisable to review one's general terms and conditions on a regular basis to adapt them to working practices and to address issues that may have arisen in their use, Directive 2011/7/EU provides an independent reason to address this task at the present time.

Discussion

France has detailed legislative provisions which regulate the substance and form of general conditions of sale and invoicing practices for commercial entities. The requirements are to be found in the Commercial Code, most notably at articles L441-3 to L441-6. These articles appear under the section of the Code dealing with transparency and restrictive and other prohibited practices. Failure to comply with these requirements exposes the wrongdoer to criminal prosecution and fines of up to EUR75,000 (or more, in certain circumstances). It is in this part of the Code that France has implemented central features of Directive 2011/7/EU.

Directive 2011/7/EU continues some of the features of its predecessor - such as stipulations as to time limits for payment and interest payable, provisions that would typically feature in any sensibly drafted general terms and conditions. However, Directive 2011/7/EU introduces one new requirement that would not usually or necessarily feature in general terms and conditions or invoices.

The 2011 Directive provides that a fixed sum of EUR40 shall be payable to a creditor as of right where interest for late payment becomes payable. This amount is expressed to be compensation for the creditor's recovery costs. The creditor can claim for recovery costs above this amount, but must justify such additional costs.

From 1 January 2013, failure by a French creditor to mention this right in its invoices will expose the creditor to potential criminal prosecution and a fine of up to EUR75,000 or 50% of the invoiced amount.

Mention of this EUR40 fixed fee must also be made in the creditor's payment terms, failing which the creditor will be exposed to a potential fine of up to EUR15,000.

Comment

In its 2012 report, the French Office of Fair Trading (DGCCRF) reported 105 criminal prosecutions for non-compliance with invoicing rules and regulated payment periods, with an additional 285 criminal cases settled. In the latter category, settlements in the amount of EUR1,857,178 were paid. The additional requirement of Directive 2011/7/EU, as implemented in French law and as described above, cannot augur well for any future reduction in such prosecutions.

In France, it is an irony that EU legislative provisions intended to encourage prompt payment of invoices by debtors should result in criminal prosecutions against creditors. But the lesson is clear. Commercial parties should ensure that their general conditions meet the requirements of the law and that their invoicing practices also comply.

The European Commission is organising an information campaign in EU states and in Croatia from October 2012 to December 2014. The aim of this campaign is to increase awareness in European stakeholders, and particularly SMEs, and within public authorities, on the new rights conferred by Directive 2011/7/EU. Given this, and the cut-off date of March 2013 provided by the 2011 Directive, now is the time to review general terms and conditions and invoicing practices for all EU-based stakeholders.

And for France-based entities in particular, where criminal sanctions apply in this area, no further time should be wasted before turning to the task of review. It is recommended that entities with French subsidiaries should also review their procedures in this area, particularly if they operate centralised invoicing procedures.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

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