[COVID-19] Be mindful of payment terms
Updated information, as of the date of publication of this article
In the context of the current health crisis, the issue of payment terms raises a number of concerns and questions on the part of companies, particularly with regard to the practices implemented by some of their commercial partners.
In these circumstances, we offer a summary of the measures taken by the government on this subject to date.
On 23 March 2020, the Government was authorized to take, by ordinance, within three months, any measure to “modify the obligations of legal persons governed by private law exercising an economic activity with regard to their customers and suppliers […], in particular in terms of payment terms and penalties and the nature of the consideration, in particular with regard to contracts for the sale of travel and accommodation“.
More than thirty ordinances have been issued pursuant to the Health Emergency Act No. 2020-290 of 23 March 2020 to deal with the COVID-19 epidemic[1], one of which specifically regulates the financial conditions for the termination of tourist travel and holiday contracts, expressly referred to in the Health Emergency Act.
Another ordinance provides for the extension of certain time limits during the health emergency period and the adaptation of procedures during such period[2].
However, business-to-business payment terms are expressly excluded from the scope of this ordinance.
While no specific measures have been taken to date with regard to payment terms, the Government is paying close attention to the practices of companies during the current health crisis.
On 23 March 2020, the Minister of the Economy and the Governor of the Banque de France thus set up a “Crisis Committee” to “respond to the most difficult cases and defuse a trend towards cessation or late payment, contrary to the guidelines set by the State in respect of relations between customers and their suppliers. “» [3].
This Crisis Committee called on companies to “respect payment terms and reduce them as much as possible” and to report “payment behaviour of major customers (whether exemplary or lacking in solidarity)” [4].
It processes in “priority” alerts involving “large companies (with an indicative turnover of more than 1.5 billion euros)“.
At the end of a meeting between the Minister of the Economy and Finance and the Executive Committee of the National Industry Council (NIC), the latter indicated that it had “called on the “SME referents” in the sectors to be vigilant about the impact of the crisis on inter-company relations, particularly with regard to the consultation on order postponements and payment terms“. For his part, the Minister indicated that “all companies, especially the largest ones, which do not meet their obligations in respect of payment terms, will not have access to the loan guaranteed by the State for their bank loans” [5].
In this context, however, “incidents” are multiplying: the number of solicitations and mediation requests sent to the Business Ombudsman every week has increased tenfold [6].
To date, the Committee has identified fourteen so-called “exemplary” companies, for having implemented accelerated payment to their suppliers, and encourages the widest possible dissemination of these “good practices” [7].
The Committee did note, however, the persistence of abnormal invoice payment behaviour and the emergence of a “cluster of new behaviours“[8], such as :
- – Very strong pressure to revise downwards the prices or tariffs applied in contracts between customers and suppliers, sometimes retroactively and under penalty of not being able to compete for a future listing,
- – Lack of validation of the invoice when service is done, which lengthens the payment terms,
- – Delay in issuing purchase orders, which effectively postpones the invoicing,
- – Request for recovery by the customer of the charges postponements obtained by the supplier,
- – Offsetting between sums due and sums receivable when their respective due dates under the legal time limits are different,
- – Unilateral tariff increases for suppliers in a position of strength.
The Crisis Committee states that it “strongly condemns” these new practices and undertakes to “act with companies for which such behaviour has been identified“.
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Companies are thus called upon to ensure that their contractual commitments are respected, particularly with regard to payment terms.
The Government is indeed very attentive to the practices implemented, being reminded that it remains empowered to take any measure necessary to modify the obligations of companies towards their customers and suppliers in this regard during the period of health emergency.
1] Emergency Law No. 2020-290 of 23 March 2020 to deal with the COVID-19 epidemic
2] Ordinance No. 2020-306 of 25 March 2020, as amended by Ordinance No. 2020-427 of 15 April 2020 and Ordinance No. 2020-560 of 13 May 2020. In this respect, it should be noted that the latter Ordinance set the end of the relevant period at 23 June 2020 inclusive.
3] Press release, setting up a Crisis Committee to deal with the worsening of payment terms, 23 March 2020.
4] Press release, Crisis Committee on payment terms: the Business Ombudsman, the National Credit Ombudsman and the presidents of socio-professional organisations mobilise businesses, 1st April 2020
5] Press Release, Conclusions of the telephone meeting of the Executive Committee of the National Industry Council (NIC), 2 April 2020.
6] Press release, Faced with a sharp rise in payment incidents, solidarity is essential, 16 April 2020
7] The following companies are expressly named: BOUYGUES TELECOM; DANONE; EDF; ENEDIS; ILIAD FREE; JOUVE; L’OREAL; ORANGE; SODEXO; SYSTEME U; ACTION LOGEMENT; GRDF; GRT GAZ and MICHELIN.
8] Press release, The Crisis Committee on payment terms continues its action and warns against the emergence of new abnormal practices, 6 May 2020.
