Context and issues

Touching the reputation of companies is a weapon increasingly used by the legislator to enforce regulations. This is particularly the case for late payments. The latter have a significant impact on the cash flow of French VSEs and SMEs. They can even jeopardize their activity.

As reminded by Mrs. Agnès Pannier - Runacher, Secretary of State to the Minister of Economy and Finance on April 8, 2019, SMEs would benefit from a net additional cash flow of 19 billion euros if the settlement deadlines were respected.

How and why did "name and shame" come into the field of applicable sanctions? Are there alternatives today? Let's dive into the heart of "name and shame", the sanction that can have a lasting impact on the reputation of French companies.

 

A regulatory base initiated in 2001

Article 441-10 (rewriting of 441-6 which prevailed previously) of the Commercial Code defines the legal settlement period. It is set at 30 days after receipt of the goods or performance of the service, unless otherwise provided for in the contract. The negotiated term cannot then exceed sixty days net after the date of issue of the invoice.

These provisions were defined by the Law No. 2001-420 of May 15, 2001 on new economic regulations and modernization of the economy (LME) of 2008. With the LME, France positioned itself on ceilings similar to those desired by the European Union with the European directive on payment periods(directive 2011/7/EU) which was to see the light of day several years later. The LME brought other novelties on the regulations in particular concerning the penalties of delays.

 

What is "name and shame"?

The "name and shame" is the result of a practice that has been in vogue in Anglo-Saxon countries for many years now. It consists in naming a company or a person who has not respected certain regulatory requirements, for example, or has behaved badly (#MeToo, #Balancetonporc).

 

The "name and shame" applied to payment deadlines

It was Emmanuel Macron, then Minister of the Economy, who inaugurated it on the subject of payment periods in 2015. The approach was then ad hoc and used Article L.465-2 introduced by Law No. 2014-344 of March 17, 2014 on consumption. Article 123 of the Sapin II law enshrines "name and shame" by making it systematic for a late payment type infraction. The DGCCRF must then notify on its website the name of all those sanctioned for late payments. The basis of "name and shame" is now in the V of art.470-2 of the commercial code.

As a result, companies are more controlled and supervised and are more exposed to the risk of sanctions. The Hamon law introduces the administrative fine as a sanction, until then only the supplier could initiate civil proceedings against a business partner. The Commercial Code provided for the sanction of non-compliance with the legal rules on payment terms by an administrative fine of up to 75,000 euros for a natural person and 375,000 euros for a legal person. Article 123 of the Sapin II law has revised this ceiling to 2 million euros for legal entities.

It is therefore the stagnation of late payments, which decided the legislator to go further. From now on, the sanctions are not only pecuniary. The risk incurred by companies is also a reputational risk with the introduction of "name and shame" in the arsenal against late payment.

The recent Pact law goes even further by providing for the publication of the sanction in a newspaper of legal announcements -at the expense of the sanctioned party-. This modification aims to make the sanction even more visible and dissuasive.

 

What applications of "name and shame"?

Since the 5 names unveiled by the Ministry of Economy in 2015, the DGCCRF has published numerous decisions on its website. Today, a history of about one sliding year can be consulted. 92 fines for an amount of €10,944,600 have been published this year -at the time of writing this article-. The average amount of the fines is 118 963€.

If we look at the amounts, we observe a multitude of small fines. Thus, we notice that only 4% (4 offences) of the fines exceed 375,000 €. These represent 34% of the total amount of fines imposed. These levels of fines are those authorized after the increase of the ceiling with the Sapin II law. The use of large fines therefore remains sporadic, although the frequency should increase in the future.

Another angle of observation concerns the profile of those sanctioned. It can be seen that the majority of them are small and medium-sized companies. They represent 55% of the fines and 45% of the value of the sanctions. Large accounts account for the largest fines (47% of the value of the decisions analyzed). However, this type of company only represents 15% of the fines.

In its 2018 activity report, the DGCCRF spoke of a rise in the power of the sanction system. Indeed, in 2018, the latter notified 263 decisions to controlled companies for €17.2M. In 2017, 155 decisions were notified for an amount of 8.6 M€. The current 2019 figures suggest that this rise could continue. In the same report, the DGCCRF mentioned 905 decisions rendered since 2014 on this subject for an amount of 42.2 M€.

 

Other initiatives to reduce payment times

Late payments therefore remain a major issue that the various governments, as well as Brussels, are fighting without ever succeeding in completely curbing them. For the past 10 years, we have first had a phase of setting up a set of rules. We are now in a second phase where the objective is to apply them.

Despite improvements, late payments remain globally at a high level and penalize French companies. Sanctions impacting reputation or finances cannot be - and are not - the only answer to address this issue.

Pedagogy is thus also required and this is done by several institutions, professional unions or associations. This pedagogy can be articulated around two axes:

  • The means to be implemented to reduce payment times
  • Valuing positive behaviors

 

An education that is now oriented towards the principals...

For some years now, education has also been aimed at contractors. The RFAR label is one of these initiatives. It is a co-creation of the Company Ombudsman and the National Purchasing Council (CNA). It validates the ethical and responsible approach of companies. This supplier label takes into account, among other things, the time taken to pay suppliers.

Among the many award criteria, item 3.1 includes "financial fairness to suppliers". This includes compliance with legal or agreed deadlines. This criterion is monitored annually, although the label is awarded for a period of three years. The label also monitors progress and developments in this area.

Paying your supplier on time is not only a legal obligation, but also a tool to improve the customer/supplier relationship. Without delay, the relationship is healthier. This allows for more qualitative exchanges, to be part of a win-win relationship. This new way of working, based on more trust, can also allow the initiation of co-construction or open innovation actions. The settlement period is no longer a strictly accounting issue. It is increasingly becoming a KPI for the purchasing function and CSR policies.

 

... and highlights positive behaviors

In the same vein, and to go against the grain of "name and shame", the "name and fame" approach has been introduced. This practice, which was initiated with the Payment Deadlines Prize awarded during the Payment Deadlines Conference, is intended to highlight positive behavior rather than stigmatize. It highlights companies that have taken action or achieved success in reducing payment times.

 

In conclusion, late payments are a complex subject. In this field, where 100% success is difficult to achieve but towards which every company must strive under penalty of punishment, the debates will remain lively. There is no shortage of avenues for reflection and improvement (dematerialization of invoicing, etc.).

The progress observed remains slow and must not be stopped because the consequences remain disastrous. Under these conditions, sanctions in general and "name and shame" in particular seem set to become a permanent fixture in the payment time landscape.

 

3 questions to Michel Afonso, Market Manager at Ellisphere

Does "name and shame" work?

It is still a little early to draw an assessment of its application, we lack hindsight on the subject. What is certain is that progress has been made in this area since the LME. However, the situation cannot be described as satisfactory at the present time. Moreover, it is difficult to attribute any reduction in late payments solely to this practice. Indeed, this practice acts in addition to financial sanctions and educational actions. Furthermore, the impact of changing attitudes and the economic situation in this area should not be forgotten.

 

Does "name and shame" have a future?

Yes, the "name & shame" in general, and particularly the one related to late payments, seems to be taking hold. First of all, it is interesting to note that the systematic character of the inscription exists for the offence related to late payments. This is not necessarily the case for other types of sanctions pronounced by the administrative authority.

Secondly, as we have said, the situation is far from being resolved. Sanctions will continue to be pronounced, and in view of the legislative evolution, to be published. Since the PACTE law, these publications are even more visible for the informed public used to keeping an eye on the legal notices.

Third, a company's reputation is a valuable asset. This negative publicity (especially if it is repeated) is a strong lever for generating/ compelling corrective action. Moreover, we can see that sanctions in other areas are also accompanied by or include a "name and shame" mechanism. The dissuasive effect is stronger, especially in the era of information overload (social networks...) that we live in.

Finally, we have seen that the legislator seems to be more observant today. The priority is to make good use of the measures provided for before adding new obligations to companies that are already very busy.

 

What's new to improve the situation?

I think that it is at the level of pedagogy that we will see changes in the short term. These will concern both the population of creditors and that of principals. The rise of CSR is, at this level, an opportunity.

Encouraging the reduction of late payments in this way is another clever way of raising awareness on this subject. The supplier payment term is thus transformed into a supplier relationship management tool. At a time of buyer/supplier co-construction, it is of significant importance.

In addition to education, tools or new ways of working could have an impact. The wider diffusion of dematerialized invoices and "procure to pay" or collection tools could bring, for example, significant gains in terms of payment delays. In addition to the industrialization of the payment process, these tools are also particularly instructive for understanding the bottlenecks that can generate these delays.

 

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