The "name and shame" and late payment: what to remember?

Background and challenges

Touching on the reputation of companies is an increasingly used weapon by the legislator to enforce regulations. This is particularly the case for late payments, which have a significant impact on the cash flow of French TPEs and SMEs. They can even put their business at risk.

As Mrs Agnès Pannier – Runacher, Secretary of State to the Minister of Economy and Finance, pointed out on 8 April 2019, SMEs would benefit from a net cash supplement of EUR 19 billion if settlement deadlines were met.

How and why has the “name and shame” come into the field of applicable sanctions? Are there alternatives today? Let’s dive together at the heart of the “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 the previous 441-6) of the Commercial Code defines the legal settlement period. It is 30 days after receipt of the goods or performance of the service unless the contractual provision to the contrary is made. The negotiated period cannot then exceed 60 net days after the date of issue of the invoice.

These provisions were defined by Act No. 2001-420 of 15 May 2001 on the new economic regulations and the modernisation of the economy (LME) of 2008. With the LME, France was positioned on ceilings similar to those desired by the European Union with the European Directive on payment deadlines (Directive 2011/7/EU) which was to come into being a few years later. The LME has brought other new developments on the regulations, in particular concerning late payment penalties.

What is the “name and shame”?

The “name and shame” has been the result of a practice in the Anglo-Saxon countries for many years. It consists of appointing a company or a person who has failed to comply with certain regulatory requirements, for example, or would have behaved badly (#MeToo, #Balancetonporc).

The “name and shame” applied to payment periods

It is Emmanuel Macron, then Minister of Economy who inaugurated it on the subject of payment deadlines in 2015. The procedure is then ad hoc and uses article L.465-2 introduced by the law n° 2014-344 of 17 March 2014 on consumption. Article 123 of the Sapin II law enshrines the “name and shame ” by making it systematic for a late payment type offence. The DGCCRF must then notify on its site the name of all penalties under the terms of the regulations. The foundation of the “name and shame” is today in the V of art 470-2 of the commercial code.

More controlled and supervised, companies are therefore more exposed to the risk of sanction. The Hamon law introduces the administrative fine as a sanction, until then only the supplier could initiate civil proceedings against a commercial partner. The Commercial Code then provided for the sanction of non-compliance with the legal rules on payment deadlines by an administrative fine of up to €75 000 for a natural person and €375,000 for a legal person. Article 123 of the Sapin II law revised this ceiling to set it at €2 million for legal persons.

It is therefore the stagnation of late payment, which has decided the legislator to go further. From now on, sanctions are not just pecuniary. The risk faced by companies is also a risk of reputation with the introduction of the “name and shame” in the arsenal against late payment.

The recent Pact Act goes even further by providing for the publication of the sanction in a legal advertisement journal – at the expense of the sanction-. The purpose of this amendment is to make the sanction even more visible and more dissuasive.

What are the applications of the “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 we can consult a history of about one slippery year. 92 fines for an amount of €10,944,600 were published this year – at the time of writing this article-. The average amount of fines is €118,963.

If we look at the amounts, we see a multitude of fines of a small amount. Thus we note that if 4% (4 infringements) of fines exceed € 375 000. These represent 34% of the total amount of fines imposed. These levels of fines are those allowed after the increase of the ceiling which occurred with the Sapin II Act. The use of large fines therefore remains sporadic, even if the frequency should increase in the future.

Another angle of observation is the profile of the penalties. It can be seen that the majority of these are ETIs. They account for 55% of the fines and 45% of the value of the penalties. The large accounts group together the most important fines (47% of the value of the decisions analysed). However, this type of company accounts for only 15% of the fines.

In its 2018 activity report, DGCCRF referred to an increase in the number of penalties. Indeed, in 2018, DGCCRF notified 263 decisions to controlled companies for €17.2 million. In 2017, 155 decisions were notified for €8.6 million. Current 2019 figures suggest that this increase in power could continue. In the same report, DGCCRF referred to 905 decisions issued since 2014 on this subject for an amount of €42.2 million.

Other initiatives to reduce payment delays

Late payments therefore remain a major issue that the various governments, as well as Brussels, are fighting without ever succeeding in containing them completely. 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, delays in payment remain at a high overall level and penalise French companies. Sanctions impacting reputation or finance cannot – and are not – the only answer to address this problem.

The pedagogy is thus also relevant and this is done by several institutions, professional unions or associations. This pedagogy can be structured around two axes:

• Ways to reduce payment delays
• Valuing positive behaviour

A pedagogy that now moves towards the principals…

In recent years, the pedagogy has also been aimed at the originators of orders. The RFAR label is one of these initiatives. It is a co-creation of the Business Ombudsman and the National Council of Purchases (CNA). It validates the ethical and responsible approach of the companies. This supplier label takes into account its attribution, in particular, the established deadlines for the settlement of suppliers.

Among the many award criteria, point 3.1 ensures, inter alia, “financial equity vis-à-vis suppliers”. This includes compliance with legal or agreed deadlines. This criterion is followed annually while the label is granted for a period of 3 years. The label also monitors progress made and developments in this field.

Paying your supplier in time therefore appears as a legal obligation, but also as 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 for the initiation of co-construction or open innovation actions. The settlement deadline is therefore no longer a strictly accounting subject. It is increasingly a KPI of the purchasing function and CSR policies.

… and highlights positive behaviours

In the same vein, and in order to counter-sense the “name & shame”, the “name and fame” has emerged. This practice initiated with the Price of payment deadlines given during the Assizes of payment deadlines intends to value positive behaviors rather than stigmatize. This highlights companies that have undertaken actions or encountered successes in reducing payment deadlines.

In conclusion, delays in payment are a complex subject. In this area where 100% success is difficult but to which every company has to go under penalty, the debates will remain lively. There is no shortage of avenues for reflection and improvement (dematerialisation of billing…).

The progress observed remains slow and, above all, must not be stopped because the consequences remain disastrous. Under these conditions, sanctions in general and the “name and shame” in particular seem to be set in motion to settle in the landscape of payment deadlines.

3 questions to Michel Afonso, market leader at Ellisphere

Does the “name and shame” work?

It is still a little early to take stock of its implementation, we lack any hindrance 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 moment. It will be more difficult to attribute only to this practice a possible reduction in late payments, since this practice is complementary to financial sanctions, educational measures, and the impact of changes in attitudes or economic conditions in this field must also be borne in mind.

Does the “name and shame” have a future?

Yes, the “name & shame” in general, and particularly the one related to late payments, seems to be set up in a sustainable way. First, it is interesting to note that the systematic nature of the registration exists for the infringement related to late payments. This is not necessarily the case for other types of sanction imposed by the administrative authority.

Secondly, because, as we pointed out, the situation is far from being resolved. Sanctions will continue to be pronounced, and in view of legislative developments, to be published. Since the PACTE law, these publications are even more visible to the well-informed public accustomed to doing the day before legal advertisements.

Third, the reputation of a company is a valuable asset. This negative publicity (especially if repeated) is a strong lever to generate/force corrective action. Moreover, we see that sanctions in other areas are also accompanied or provide for a mechanism of “name and shame”. The deterrent effect is stronger, especially in the era of overinformation (social networks…) that we live.

Finally, we have seen that the legislator seems to be more in a position of observation today. Priority is the proper use of the arrangements provided for before the addition of new obligations to already highly sought-after companies.

What’s new to improve the situation?

I think that it is at the pedagogy level that we will observe short-term developments, which will concern both the creditor population and the donor population. The rise in CSR is, at this level, an opportunity.

Encouraging the reduction of late payment from this angle is another skillful way to raise awareness on this subject. The delay in the settlement of supplier is thus transformed into a tool for steering the relationship of suppliers. At the time of the steps of co-construction buyer/supplier, it is of significant importance.

In addition to pedagogy, tools or new ways of working could have an impact. Wider dissemination of the dematerialised bill and tools of “procurement to pay” or recovery could, for example, bring significant gains in terms of settlement deadlines. In addition to the industrialization aspect of the payment process, these tools are also particularly instructive to understand the blockages that can generate these delays.

Useful sources

• DGCCRF Practice Sheet on Timeliness of Payment