There is nothing worse than waiting for a client to pay when you have cash flow problems. But what do you do when the cheque has still not come. The editor has asked me to explain how to deal with late payment and what are your rights.

Legal Obligations

Firstly you must understand that all payments are part of a contract between the client and the provider. This contract involves legal obligations on both parts, one, of course, being payment. For all contracts to be binding, they require written sales terms and conditions, defining payment conditions, delays, how it is to be paid and the course of action to be undertaken, in case of late or non-payment, as well as other vital information. This must be written in French. Most British entrepreneurs do not take this seriously enough. Bills, quotes and order forms are legal documents and are required under French law to be in French, with the possibility of a translation. I have a horror story of a wealthy man who lived near Bordeaux, who had built a small housing estate by French tradesmen. He did not pay them for the constructions and they took him to court. He won, because the tradesmen had not provided quotes that were legal recognisable. He kept his houses and the tradesmen went bankrupt. No laughing matter, hey!! Of course, the risks and dangers are more important for those who do not work on a immediate payment basis. It is advisable to seek legal advice and no just make up your terms and conditions on your own. There are a number of web sites that provide standard terms and conditions, but each entrepreneur needs to adapt the text to his activity and his specific requirements. You can seek help from the Chambre de Métiers or the Chambre de Commerce, where they have lawyers to advise you. However if you ask them to write your terms and conditions, they will bill you.

Debt Collection - Assessing your Client

Imagine that you are waiting to be paid by a client and that from a legal point of view you have got everything covered. This first thing to do, is to categorise the type of payer, before you can act. A good payer normally – an email or a quick phone call, just to remind him; A negligent payer, who always waits for you to send a reminder, send the reminder rapidly within the legal delays (see later); A bad payer, who is capable of paying, but will hold on to the last moment and will take advantage of any legal loopholes, send a reminder rapidly and don’t hesitate to start any legal debt collection procedures; A bankrupt payer – he can’t pay or at least has no available cashflow – for small sums put him under pressure to pay straightaway, if a larger sum organise a partial payment and try to put into place a signed payment plan.

How to organise your reminders

To be effective your reminders (relances/rappels) must follow certain rules: · Be different depending on the client, the sum and the length of time · Be gradual and follow a certain rhythm · Be credible ( i.e. follow up your threats) (not physical of course)

What methods do you use?

· Privilege the telephone for large sums, it is quick and offers an immediate response · Write personalised letters to confirm complex agreements or to propose a payment plan possibilities (after phone call) · Use standard gradual letters for repetitive cases (models can be found on the internet – lettres de rappel) For most of us, you direct the reminders to the private client or another small entrepreneur. In a larger company, you address the letter to the accounts department (La Comptabilité).

What kind of threats can you use ?

· Stop all deliveries or services undertaken, first informing the client by a recorded letter, with signature at reception or by “mise en demeure” · If you have included a “réserve de propriété” in your terms and conditions, in case of non full payment of goods or materials, the provider has the right to recuperate them, first informing the client by a recorded letter, with signature at reception or by “mise en demeure” · Litigation or application of penal clauses in terms and conditions · Lateness penalties cannot be used as a threat, because the provider has the right to ask for them No matter the threat used, you must be willing to follow it through within the time limits given, if not, not only do you loose your credibility, but if you break the rhythm of the legal procedure and you need to start again.

What is a “mise en demeure” ?

· a letter using the phrase " mettre en demeure " and with a date for payment starting from the reception ( recorded letter with signature, bailiff summons, or delivery by hand with a signature) · The “mise en demeure” serves for determining the date from which legal interests can start and is recognisable in the eyes of the law.

How to put in place a payment plan ?

· Write a letter outlining the arrangement to be agreed and signed by the client · Clarify the payment conditions for arrears and eventually, any current payments · Choose an interest rate that is close to the market (normally defined in terms and conditions on quotes and bills) ( it is recommended to bill them at the end of the arrangement, in order to allow for an eventual commercial gesture) · Force the payments by direct debit

What rate of penalty interest can you apply?

The commercial code advise to apply the rate for the refinancing of the European Central Bank + 7 points and, at least, 1.5 times the legal rate - the rate of the ECB (http://www.ecb.int/index.html) – the legal rate (www.banque-france.fr) is fixed each year and published in official journals at the beginning of each year In order not to be a cheaper banking service, choose the most dissuasive.

Time limits for reminders

If you choose to follow a method of gradual letters, there is a certain procedure to follow. On the original bill, you indicated the date of payment. If after ten days you have not received payment, you start the ball rolling and send out your first letter, which acts as a reminder, asking for immediate payment. If in ten days from the date, you sent your first reminder letter, you still have no payment, you send a second letter. This is a little more stern and serious, but resting with correct terms. If after ten days, from the date of your second reminder, you still do not hear anything or not come to an arrangement with your client, you go up a level and start the legal procedure, with a reminder with “mise en demeure” (i.e. recorded letter with signature at its reception). This is the last chance the client has before, you undertake legal action.

What happens if they still don’t pay

You need to assess whether the sum is important enough to worry about. If they sum is for less than a couple of euros, it may be best to write it off. Once you have decided to continue, seek legal advice from your accountant or a lawyer. You have two possibilities to send a bailiff (Huissier de Justice) to collect the debt or start litigation. The choice depends on the sum, the time you can wait for payment and the client. The huissier is often the least expensive, but you can not recuperate your costs from the client. The huissier can also put in place payment plans, so it can take time to recuperate the whole sum. Using a lawyer can be more risky, but if you win you pass the costs onto the client.

The safest option for everyone is to be paid up front or at the moment of the sale. In the case of tradesmen, it is advisable to take 33% of the command at the moment of signing the quote or before starting the work, to cover at least the costs of materials. Minimise the risks and send regular bills. If you are working on a big job and they do not pay, with interim bills, you can at least stop quickly before you run up a big bill. If you do undertake a ‘big’ job and it is with another company, you can ask the company to give you their siret number beforehand. Your bank (even though they are not supposed to) can check them out and let you know if they are reliable clients or not.

The best way to avoid or cope with debt is to be prepared legally and to verify your clients credibility, by asking around before you enter into anything.