Collecting interest and collection costs in France

Unpaid invoices are a fact of life for businesses. Fortunately, several procedures do exist to sanction those who have not paid, so that companies can be compensated for any damages endured by a counterparty. However, when a counterparty is going through financial difficulties, the rules may change.

Despite clear legal provisions under French law for unpaying debtors, the courts in practice do not always have strict penalties in place for companies going through financial difficulties. This can make it even more challenging for creditors to collect the amount they are entitled to. Our lawyers at the French Desk explain which measures are in place for creditors to collect the entire amount they are entitled to.

Charging interest on late payments

When dealing with debt collection in France, different rules may apply than in other European countries. When dealing with late payments, creditors can charge interest on late payments. In doing so, companies can use the amount of the interest to compensate for the damages caused by late payment. Under French law, there are several options for which companies can calculate the amount of interest they are entitled to.

• Interests based on the legal rate: This is a low amount of around 0.90% and should compensate for inflation or price increases.
• Commercial interest: Besides interest rates set under French law, different rates exist for unpaid invoices between companies. If no agreement has been made between the two companies, this rate is 10% above the ECB rate.
• Contractual default interest: Parties can also agree on a rate in their contract or general terms and conditions. Often this is between 1.5% to 3% times higher than the legal rate.

Compensation for collection costs

If a counterparty fails to pay on time, then besides the interest rate for late payment, creditors can also charge a fee for the collection costs. Under French law, any creditor dealing with late payments are automatically liable to recover collection costs to compensate for the damages and loss they have endured. Under Article L411-10-II of the Commercial Code and Article D441-5, the cost is €40, – per invoice.

If the collection costs incurred are more than the fixed compensation, then the creditor can request additional compensation. This can only be requested if legal proceedings have been initiated or if the creditor can prove the costs to cover the damages are much higher.

Agreeing to interests in the general terms and conditions – what happens in practice

In the general terms and conditions, creditors can also agree to a set interest rate. In practice, however, the court can reject to apply the conditions. This way, debtors in financial difficulties are protected against high interest and collection costs. In most cases, judges apply the interest rate that is most favourable to the debtor.

Contact our French Desk

Although the French Supreme Court has specified that an interest rate of 10% applies to late payments, this is not often the case. With a legal system that is more lenient towards businesses in financial difficulties, collecting interest and costs in French courts is not always a straightforward process. That is why our lawyers at the French Desk can help you draft and review your contracts and terms and condition. This way the French Desk can help increase your chances of a successful collection that will help you recover the amount you are entitled to. For more information, feel free to contact us.