Supplier payment terms and rules to know

What is the legal payment period?

The legal supplier payment period is 30 days after receipt of goods or performance of service. . However, by agreement between the parties, this period can be extended to 60 calendar days, or 45 days end of month.

In France, the law strictly regulates these delays between two professionals in order to maintain a certain fairness and fluidity in commercial transactions. This legal framework is essential when you consider that nearly half of all bankruptcies are due to insufficient liquidity !

Special payment terms

Derogation periods apply to certain transactions due to the specific nature or seasonality of certain products. Examples include (but are not limited to) :

• Transport and logistics: 30 days after invoice date

• Certain alcoholic beverages: 30 days after end of delivery month

• Wines: 45 or 60 days post-invoicing

• Sporting goods: 90 days for the balance of invoices before the activity season.

You'll find the full list of derogations in this communication from the DGCCRF (Direction générale de la concurrence, de la consommation et de la répression des fraudes).

What is the maximum payment period in France?

In France, payment cannot be made more than 60 days after the date of purchase. after performance of the service or delivery of the goods, regardless of the terms of the contract.

What is the average supplier payment term in France?

According to Banque de France The payment period for suppliers is 48 days.

This means that many companies are not in good standing: 61% of companies pay more than 60 days in arrears, exposing themselves to potential penalties. These are mainly large companies.

For all that, the situation has improved In 15 years, this average time has fallen by 13 days, from 61 to 48 days.

How do you calculate average supplier payment times?

The average supplier payment period is determined by the following ratio :

(trade payables / purchases) x 360 days

For example, if you currently have €20,000 in outstanding supplier debts, and you made €300,000 in purchases during the year, your average supplier payment period is 24 days.

Also known as DPO (Days Payable Outstanding). Please note, this calculation does not take seasonality into account It's a snapshot of the moment.

The impact of payment delays on cash flow

Supplier payment times have a direct impact on a company's cash flow.

Longer settlement times improve short-term cash flow by preserving liquidity (working capital requirements are reduced), but can also damage relations with suppliers if these lead times are perceived as excessive.

Conversely short payment terms can foster good relationships with suppliers, but can also putting cash flow under pressure if customer receipts do not keep pace (working capital requirements increase).

There is a solution for maintaining good supplier relations and controlling working capital (working capital requirement) : Hero advance payment of your supplier invoice. Your supplier is paid on the due date, while you only pay the invoice at 30 or 60 days.

How do I calculate the due date of a supplier invoice?

First of all, we identifies the issue date of the invoice or the date of receipt of the goods/services, as agreed. From this point onwards, we simply adds the payment period agreed in the contract or on the invoice.

For example, if an invoice is issued on February 1 and the payment term is 30 days, the due date will be February 31. It is essential that this date is respected to maintain good relations with suppliers and avoid late payment penalties.

Who sets payment terms?

Payment terms are generally set by mutual agreement between buyer and supplier during contract negotiations. However, they must remain within the limits imposed by French law: a maximum payment term of 60 days or 45 days end of month .

However, if no payment term is specified in the contract, the default term is 30 days ( article l 441-6 of the french commercial code ).

Why is it important to pay suppliers on time?

Paying suppliers on time is a sign of reliability and professionalism. This allows you to :

• Strengthen the relationship and trust between the company and its suppliers

• Guarantee a continuous supply of purchased goods and services

What are the consequences of late payment?

Here are some concrete consequences of late payment by your suppliers:

• Late payment penalties

They are applied to the contract rate.

• Flat-rate allowance

They are applied at the discretion of the supplier.

• Legal proceedings

Suppliers may take legal action to recover amounts owed and damages suffered, which can lead to additional legal costs and loss of valuable time.

• Statutory auditor refuses to validate balance sheets

Late payments can lead to a situation where the statutory auditor refuses to validate the company's balance sheets, thus publicly highlighting financial management problems.

• Penalties imposed by the DGCCRF

In France, companies can be sanctioned by a administrative fine of up to up to 2 million euros for non-compliance with payment deadlines . What's more, the sanction must be published on the DGCCRF website, a "name and shame" practice that can seriously damage your company's reputation.

How are late penalties calculated?

Late payment penalties are calculated according to the terms stipulated in the contract between the company and the supplier. Contracts stipulate often a rate of 10% + the ECB's key rate.

Unless otherwise specified in the contract, the legal provisions in force in France apply. The law provides for a late payment penalty rate:

• With a late penalty rate equal to or greater than three times the legal interest rate .

• With late payment penalties which may not be less than a fixed sum of €40 .

Here's how to calculate late penalties:

1. Identify the interest rate applied : The interest rate is either specified in the contract, or is the legal rate multiplied by three.

2. Calculate the number of days overdue: This is the difference between the invoice due date and the actual payment date.

3. Apply the calculation formula: ( invoice amount excl. VAT x penalty interest rate / 100) x (number of days overdue / 365).

Strategies for optimizing supplier payment times

Optimize supplier payment times contributes to efficient cash management and healthy supplier relations.

Technologies for optimizing supplier payments

Here are a few concrete examples of technologies that can be used to optimize supplier payment times:

1. Supplier Relationship Management (SRM) systems :

These systems centralize all supplier information. Quickbooks The new accounting management tool allows you to centralize the tracking of your supplier invoices. This software can connect to Hero.

1. Electronic Document Management (EDM) software :

They enable supplier invoices to be dematerialized and centralized, making them easier to process and speeding up the validations required for payment.

1. Automating payment processes :

Automation software can be used to manage payment cycles, from receipt of invoices to payment and the necessary approvals. For example, Hero can automate your treasury processes, freeing up precious time.

Negotiate longer payment terms with suppliers

Negotiating longer payment terms with your suppliers can be a real challenge. essential when cash flow is tight . Here's how to do it, step by step :

1. Plan ahead for cash flow pressures.

2. Request a payment plan. Notify your supplier as soon as possible.

3. Specify changes in payment terms in a written document, and make sure you do him a favor in return to take care of your relationship!

When can I refuse to pay a bill?

Refusal to pay an invoice may be justified in certain specific situations:

1. Incorrect delivery (defects)

2. Incomplete delivery

3. Billing errors (such as an incorrect amount or unagreed charges)

4. Late delivery

How can I refuse to pay a supplier invoice?

Here's a step-by-step guide to refusing to pay a bill:

• Check:

Check the invoice carefully and compare it with the purchase order, the contract and the actual delivery.

• Documentation :

Document any non-conformities, defects or other problems with supporting evidence such as photos, emails or testimonials.

• Communication :

Inform the supplier as soon as possible of your intention to refuse payment.

• Motion for resolution :

Propose solutions to resolve the problem, whether it's correcting errors, delivering missing parts or repairing defects.

• Formalization :

Send your letter by registered mail.

Refusing to pay an invoice is a serious step that can have legal and financial implications. So it's crucial to proceed with caution.

Can I invoke the statute of limitations to avoid paying my debt?

It is possible to invoke the prescription of an invoice between professionals in a very specific case: after 5 years without a payment reminder from the supplier, and in proof of your good faith.

What is the legal payment period with a foreign supplier?

Payment terms with a foreign supplier may vary depending on the supplier's country of origin.

Legal payment terms with a European company

Within the European Union, the Directive 2011/7/UE establishes that payment terms must not exceed 60 days Unless another period is expressly agreed in the contract and is not unreasonable for the supplier.

Legal payment terms for non-EU companies

For transactions with companies based outside the European Union, payment terms are as follows governed by the laws of the supplier's country or by the terms of the contract.

Depending on the contract, the time limit may run from :

• Invoice date

• Shipment date

• Date of customs clearance

• Date of receipt

In all cases, it is strongly recommended to clearly define the supplier payment terms in commercial contracts to avoid misunderstandings and disputes.

To facilitate your supplier relations while financing your cash flow, get in touch with a Hero advisor.