It’s a familiar tale to many a freelancer.
You’ve completed a client’s work, fulfilling the brief to the letter, and sent your invoice.
You wait for payment. One week becomes two. Two weeks become four. Yet, still you’ve received no payment for the job. Time to get a little concerned and start wondering how best to give your customer a nudge.
Your business costs, your taxes, your rent and your bills need to be paid on time. So why shouldn’t you?
Been there? You’re certainly not alone. Late payments (and even worse, unpaid invoices) are a common source of stress for a self-employed worker trying to get by.
Even if there is no magic bullet for late payments, there is good practice you can put in place to help you avoid them and protect your cash flow. Let’s take a look...
What’s the law on late payments?
There are clear laws in France regulating payment periods between professionals and businesses in France and they are set out in articles L441-10 and following of the French trade code, or code de commerce. The legal maximum payment period is 30 days after completion of the service or sale of the goods.
Both parties can decide to extend this period to 60 days maximum from the date the invoice is sent, or 45 days maximum if it’s a recurrent (for example, monthly) payment. This prolongation of the payment period must be written into a contract or invoice in order to be valid; without a written confirmation, the 30-day rule will still apply.
There are different kinds of payment period you may come across as a freelancer:
- Cash payment: this is a payment made with bills or coins immediately after the delivery of goods or services.
- Payment upon receipt of invoice: as the name suggests, the customer will pay the supplier as soon as they have received the invoice for goods or services rendered. This generally involves a delay of a few days.
- Default payment period: this is the standard legal period of 30 days.
- Negotiated payment period: payment is made within a maximum of 60 days, or 45 days in cases of recurrent payments.
In practice, most companies will pay upon receipt of invoice or within the default payment period.
🔔 Important to know: these rules only apply to business-to-business (B2B) transactions. There are no maximum payments periods for business-to-consumer (B2C) transactions.
Late payment penalties
If your customers don’t pay on time, you are legally entitled to ask for a late payment penalty. The penalty corresponds to an interest rate added to the initial sum that was invoiced. This rate must be mentioned in your general terms of sale or simply on your cost estimate.
The rate is calculated based on the European Central Bank’s (ECB) own interest rate plus 10% for the penalty. Currently the ECB’s rate is 0%, so the penalty interest is 0%+10% = 10%.
You are also entitled to demand €40 in recovery fees, which must be invoiced to the customer in question.
💡 Good to know: to help protect yourself from late payments and obtain the penalties they incur, we advise you to put the following mention (in French), in all of your cost estimates and invoices:
"Règlement dès réception de la facture de solde (dans la limite de 30 jours). Tout règlement effectué après expiration du délai donnera lieu, à titre de pénalité de retard, à l'application d'un intérêt égal à celui appliqué par la Banque Centrale européenne à son opération de refinancement la plus récente, majoré de 10 points de pourcentage, ainsi qu'à une indemnité forfaitaire pour frais de recouvrement d'un montant de 40 €. Les pénalités de retard sont exigibles sans qu'un rappel soit nécessaire."
How freelancers can avoid late or unpaid invoices
Even if your relationships with customers are generally good, it can only take one late payment to jeopardize your freelance business. Here are some precautions you can take to prevent being paid late in the first place.
Good practice #1: write a contract before starting a mission
It’s essential to create a contract before starting a mission with a client. It doesn’t need to be a long document with multiple sub-clauses and pages of small-print, but it should at least establish a framework for your working relationship that sets out the scope of the job and your fee.
Often, a cost estimate will be enough; a signed estimate has the value of a contract that commits both parties.
Between businesses, a contract is not mandatory (unless your customer requests one) but it is very useful in case of any dispute. If you are not paid for your work, it will be very difficult to take successful legal action of you don’t have a contract or signed cost estimate.
You need to be thorough when writing out the document. To be legally valid, a cost estimate must include certain, compulsory information, such as:
- both yours and your client’s business addresses;
- your SIRET number;
- the word “estimate” (in French, devis);
- the date, as well as the cost estimate reference number;
- the price of the goods or service, both pre-tax and with taxes included;
- the applicable VAT rate as well as your VAT ID number (numéro de TVA intracommunautaire), if VAT applies to your legal status;
- the signatures of both you and your customer preceded by the words “bon pour accord”;
- a mention of the late payment penalty discussed earlier.
Good practice #2 : use a factoring service
When it comes to late or unmade payments, there is no such thing as ‘zero risk’. A factoring service, however, does come pretty close.
What is it?
Factoring is essentially a transfer of risk. If you call upon a factoring service, you will sell to a third party your ‘accounts receivable’, that is to say the bills you send to customers. This third party pays you the sum owed in advance and then takes care of recovering that money from your client. If there is a dispute or other problem with the payment, it’s the factoring service that carries that risk.
In return for your peace of mind, you pay the factoring service a commission. In many cases, you can even pay an ongoing subscription to the service.
🔔 Worth noting: factoring is only possible in B2B transactions and not for bills destined for consumers directly.
At Qonto, we have partnered with Edebex, a simple, safe and effective factoring service. Edebex promises to pay your invoice within 72 hours of you sending it. Qonto customers enjoy a one-year free subscription, that’s an immediate saving of €250 for the first year’s membership.
Good practice #3: take out business insurance against the risk of non-payment
You could also decide to take out credit insurance against the risk of not being paid.
In this case, it’s your insurer who will pay you if your customer doesn’t, within limits that will be established in your insurance policy contract.
💡 Good to know: as a freelancer, you’re strongly advised to take out professional liability insurance (in France, une assurance responsabilité professionnelle).
However, this does not cover the risk of late or unmade payments owed to you.
Good practice #4: get covered through freelancer platforms
You can also cover your bases by taking out contracts for missions via freelancing platforms such as Malt. On one hand, these will put you in contact with companies looking for freelancers, thus finding you new clients. On the other hand, they will deal with the administrative side of any mission, including cost estimates and invoices. This double benefit is attractive to many freelance workers.
Often, the customer will pre-pay the amount of the invoice the moment they sign the cost estimate. The freelance platform will keep the money until the mission is complete, and then transfer the sum to the freelancer minus its commission (usually a percentage of the invoiced amount).
In most cases, if ever a customer does not pay, the platform will still reimburse the freelancer.
What action to take if you are paid late (or not at all)
If prevention doesn’t work and you do fall victim to a late payment, then you need to turn to a cure. However, it’s not always easy knowing what to do. Should you send a reminder? If so, when, and how? What if the customer still doesn’t respond?
Here are the steps you can follow to get what you’re owed.
Step 1: the friendly reminder
You sent your invoice more than 30 days ago and still it hasn’t been paid.
There’s no need to worry: in the vast majority of cases it’s a simple case of somebody forgetting.
The first thing to do is to send your customer a friendly reminder once the legal payment period has passed. Usually, an email or phone call will resolve the situation quickly. Before sending them a gentle nudge, just make sure that you did send the right invoice to the right person, along with your bank details.
Step 2 : the formal demand letter
You’ve emailed a friendly reminder and maybe even followed up with a call, but still no payment. What now?
Things get more delicate at this stage and it’s time to move on to the formal demand letter (in French, lettre de mise en demeure). This letter orders your customer to settle the bill and states your intention to take legal action if that doesn’t happen.
The formal demand letter needs to be sent to your client-company’s headquarters by registered post and with recorded delivery. You can also send a copy by email.
You can always seek help in writing the formal demand letter via companies like Legalstart.
Step 3: legal recovery proceedings
What happens if your customer ignores even the formal letter of demand?
All is not lost. The law is on your side and must be obeyed.
Taking someone to court can be a scary process that may seem too long and too costly for a lone freelancer. But it needn’t be.
An ‘order for payment’ procedure (in French, la procédure d’injonction de payer) **is fast, relatively hassle-free and specifically designed for small-scale commercial disputes.
How does an order for payment procedure work?
It’s not as head-bangingly complicated as you might fear, as long as you are in the right. First, you need to fill out a procedural form (you can get that via this link) and then send it to the head of the trade tribunal (Président du Tribunal de Commerce) in the jurisdiction where your customer has a registered address.
Along with this form, you will need to send:
- the signed cost estimate or contract (hence the importance of creating one at the start of the mission);
- the invoice;
- any emails and letters you’ve exchanged on the subject;
- the reminder letter;
- the formal demand letter and confirmation of its delivery.
Once your documents have been treated, you’ll receive a payment order that you send to your customer to sign via the intermediary of a bailiff (in French, un huissier). It falls on you to contact the bailiff and pay them a fee of, on average, around €50 for the procedure, a sum that you will recover from your customer at the same time as the unpaid invoice.
The late-paying customer will then have one month to contest the payment order. There are two scenarios:
- Scenario 1: the customer accepts the order. The amount of the unpaid bill - along with any penalties and recovery fees - will be taken from the customer’s account and transferred to you.
- Scenario 2: the customer contests the order. You will then have to appeal and argue your case before a judge, although you may not necessarily need the assistance of a lawyer. Often, these hearings take place behind closed doors in a judge’s office.
💡 Good to know: there is another legal channel you can follow, although it is not designed for small commercial disputes. This payment subpoena procedure (in French, procédure d’assignation en paiement) can take considerable time and money to pursue.
In an ideal world, all your customers will pay in full and on time. Back in reality meanwhile, most will respect their debts but a very small minority will try to cheat you of what you’re owed. With the above information, you should know what to do to get the money you’ve worked hard for.
Are you a freelancer looking to open a business account? With Qonto, you can spend less time on admin and more time on missions.