LME Act and payment periods: what are your company's obligations?
The entry into force of the LME law, or law on the modernisation of the economy, was a response to the need to stimulate the economy.
One of its key measures is to cap invoice payment times. These were too long, and tended to slow down the economy by having an impact on VSEs and SMEs, which were sometimes forced to borrow to continue their activities.
What are the benefits of the LME Act? What are the payment deadlines and how do you calculate them? We tell you all about your obligations, and the software you need to meet them!
What is the LME Act?
LME Act: definition
The LME Act, or Loi de modernisation de l'économie, came into force in August 2008. It sets out a series of measures aimed at boosting the economy, which can be divided into 4 categories.
Support for entrepreneurship
The aim of this scheme is to encourage business start-ups, in particular through :
- the creation of auto-entrepreneur status,
- protecting the assets of individual entrepreneurs,
- simplifying the law for small and medium-sized businesses,
- promoting the takeover and transfer of businesses.
☝️ The capping of payment periods, to which we will return in more detail, is the other major measure included in this section.
Mobilising competition
Mobilising competition involves in particular
- the creation of the Competition Authority
- changes to sales periods (now 5 weeks in winter, 5 weeks in summer and 2 floating weeks throughout the year),
- the abolition of the authorisation procedure for the installation of a retail outlet with a surface area of less than 1,000 m².
Enhancing the attractiveness of the region
A number of measures have been adopted to make the region more attractive:
- the democratisation of very high-speed broadband,
- an advantageous tax system to encourage foreign executives to settle in France,
- simplifying the issuing of residence permits by prefects.
Financing the economy
Finally, to encourage the financing of the economy, the LME Act provides for
- extending the Livret A passbook scheme to all households, with the aim of unlocking household savings,
- strengthening the role of the Caisse des dépôts et des consignations,
- modernising the financial centre to boost growth and employment in the sector.
The benefits of the law on the modernisation of the economy
The aim of the LME Act is to stimulate growth. It is based on the following observation: businesses rarely get paid within a reasonable timeframe.
The loss of earnings associated with these sums, owed but not collected, penalises their cash flow. As a result, businesses find it difficult to pay their bills and are unable to make purchases.
The aim of the law to modernise the economy therefore lies partly in reducing these inter-company credits, to inject more liquidity into the economic circuit.
💡 Since it came into force, there has been an improvement in payment times. At least that's what this infographic compiling the results of the Observatoire des délais de paiement 2018 annual report, produced by Gestion Crédit Expert, reveals:
What are the payment terms under the LME Act?
Changes to the legislative framework for payment periods
Originally, the LME Act capped payment terms at :
- 45 days end of month, or 60 days net from the date of issue of the invoice, if the period is defined contractually ;
- 30 days if payment terms are not specified in the contract, as introduced in 2001 by the NRE law on payment terms.
The Hamon Act, which came into force in 2014, then introduced a single payment period of 45 days from the date of issue of invoices covering several deliveries of goods or services to the same customer during the month.
Finally, in 2015, the Macron Act restored the ceiling of 60 days net from the date of invoicing. This became the single ceiling still in force today. There is still the option of setting it at 45 days, with the agreement of both parties in the contract.
Payment terms for the public sector
For the public sector, the maximum payment periods defined since 1 May 2013 are as follows:
- 30 days for all State contracts and public establishments excluding EPICs (public industrial and commercial establishments),
- 50 days for public health establishments and the armed forces health service,
- 60 days for contracting authorities, as stipulated in article 3 of the Order of 6 June 2005.
Payment terms specific to certain sectors
Due to the nature of the products they market, certain sectors are subject to specific payment terms. For example
- 30 days after the end of the ten-day delivery period for purchases of perishable food products and frozen or deep-frozen meat, deep-frozen fish, ready-made meals and preserves made from perishable food products,
- 20 days after the day of delivery for purchases of live cattle intended for consumption and fresh meat derived from them,
- 30 days after the end of the month of delivery for purchases of alcoholic beverages subject to the consumption duties provided for in article 403 of the General Tax Code,
- 45 days after the end of the month, or 60 days after the date of issue of the invoice, for purchases of grapes and musts intended for the elaboration de vins ainsi que de boissons alcooliques passibles des droits de circulation prévus à l'article 438 du code général des impôts.
💡 All of these specific provisions can be found in article L441-11 of the French Commercial Code.
Special payment terms
A number of business sectors (particularly those with a high seasonal impact) benefit from special payment terms under inter-professional agreements. These include
- agricultural equipment
- sporting goods
- the leather industry
- watchmaking, jewellery, goldsmiths and silversmiths,
- and the toy trade.
If this applies to you, you can find out more about the various exemption agreements on the website of the Ministry of the Economy, Finance and Economic Recovery.
Payment terms for exports
The LME Act does not apply to commercial contracts signed outside France. As a result, a French company can invoice a foreign company without taking into account the payment terms in force in France. These can be 90, 120, 150 or even 180 days. However, for commercial transactions between companies located in the European Union, the ceiling is 60 days.
There is also a special rule for French overseas departments and territories, where goods are transported for longer periods. In this context, the regulatory time limits set out in the LME Act apply only 30 days after receipt of the invoice.
Penalties for non-compliance
Bad payers are liable to fines levied by the Directorate-General for Competition, Consumer Affairs and Fraud Control (DGCCRF).
The maximum fine is
- 75,000 € for an individual,
- 375,000 for a legal entity.
In the event of a repeat offence over the following two years, these amounts can be doubled.
In 2016, the Sapin Act raised the ceiling to €2 million for legal entities.
Before reaching these levels, late payment penalties are calculated according to a formula based on the European Central Bank (ECB) interest rate. The parties (customer and supplier) may decide on another rate, as long as it remains greater than or equal to three times the legal interest rate.
LME Act: calculating payment terms
How do you calculate a 45-day month-end due date?
This due date means adding 45 days to the invoice issue date, then going to the end of the month of this 45th day.
👉 Examples:
05/06/2020 ‣ payment must be made before 31/07/2020
15/06/2020 ‣ payment must be made before 31/07/2020
18/06/2020 ‣ payment must be made before 31/08/2020
How do you calculate 30 days end of month?
This deadline means that payment, laid down by the LME Act, must be made by the end of the month following the issue of the invoice at the latest.
👉 Examples:
05/06/2020 ‣ payment must be made before 31/07/2020
18/06/2020 ‣ payment must be made before 31/07/2020
30/06/2020 ‣ payment must be made before 31/07/2020
How do you calculate 60 calendar days?
This deadline means that the invoice must be paid no later than 60 calendar days from the date of issue.
👉 Example:
15/06/2020 ‣ payment must be made before 13/08/2020
30/06/2020 ‣ payment must be made before 28/08/2020
Accounting software to help you meet deadlines
The challenge is to pay your suppliers on time. With the "month-end" invoicing system, it used to be possible to process everything at the same time.
Now, with calendar invoicing, it's the invoice issue date that you need to pay attention to. The risk is that the invoices will come in as they go along. By only paying attention from time to time, it is possible to miss a few deadlines.
This is where having accounting software that is up to date with the latest legislation is invaluable. So it makes sense to choose a SaaS (Software as a Service) solution in this area. Sage 100c Comptabilité, for example, has the advantage of sending you reminders in the event of late payment. With Factomos, you can view your recent invoices for better control.
The legal obligations with which companies must comply are evolving in the direction of greater liquidity. On the other hand, for companies, this means greater responsiveness and assiduity in monitoring invoices, which only accounting software can provide.
Article translated from French