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LME “Loi de Modernisation de l’Économie” (Economic Modernisation Act)

LME “Loi de Modernisation de l’Économie” (Economic Modernisation Act) Reform of terms of payment Exemption agreement, electrical equipment industry. CONTENTS. Terms of payment within the European Union Terms of payment in France - before the LME act Terms of payment - LME act

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LME “Loi de Modernisation de l’Économie” (Economic Modernisation Act)

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  1. LME “Loi de Modernisation de l’Économie” (Economic Modernisation Act) Reform of terms of payment Exemption agreement, electrical equipment industry

  2. CONTENTS • Terms of payment within the European Union • Terms of payment in France - before the LME act • Terms of payment - LME act • Exemption agreements • Conclusion

  3. EC Directive • On late payments - 29 June 2000 • Principle of contractual freedom, except abuses, • the provisions of the directive only apply when there are no contractual stipulations • Terms of payment: 30 days net • Late payment penalties: ECB rate plus 7 points • Public procurement terms of payment: 60 days maximum • Anti-abuse provision

  4. Terms of payment IN THE EU Contractual terms of payment (days) Average late payment (days) NB Contractual terms of payment are the theoretical payment time frames usually observed. In practice, average terms of payment excluding late payments are generally over 70 days in the south of Europe and 40-50 days in other countries. Source Altares

  5. In France - before 4 August 2009 (LME act) • Inter-company terms of payment (excluding contractual agreement): • 30 days net from date goods are received • + anti-abuse provision • Late payment penalties (excluding contractual agreement): • ECB rate plus 7 points • and introduction of a minimum rate = 1.5x the legal rate of interest • Terms of payment for public procurement contracts: • 45 days net apart from for healthcare institutions (50 days) • Regulated Terms of payment: • Road transport, perishable food products • Automotive agreement - June 2006

  6. SITUATION FOR THE ELECTRICAL EQUIPMENT INDUSTRY BEFORE THE LME ACT • FGME survey – conducted in 2008 • Representativeness: 95% of total revenues at 31 December 2007 (source: "Stat Flash 2007") • Supplier payment time: 96 days • Client payment time: 79 days • Rate of stock rotation: 72 days • BTP Banque – Fédération Française du Bâtiment survey • Supplier payment time: 90 days • Client payment time: 97 days

  7. LME act - 4 August 2008 • Article 21 • Limiting terms of payment • Public policy provision: Applicable to all inter-company relations • Apart from products and activities for which terms of payment are already regulated (transport, fresh produce etc.)

  8. NEW PROVISIONS • Freely negotiable terms of payment within the framework of a maximum limit, set at 60 days net or 45 days from the end of the month • Starting point: issuance of invoice (new) • Late payment penalties: • Minimum rate = 3x legal rate of interest (instead of 1.5x) • Additional rate = 10 points of ECB rate (instead of 7 points) • Reinforced legal sanction (of civil nature) • Exemption from general system: Inter-professional exemption agreements

  9. Article 21 – III of the LME act • INTER-PROFESSIONAL SECTOR EXEMPTION AGREEMENTS • Inter-professional agreements for a given sector can contain longer Terms of payment if: • Objective economic reasons; • Gradual reduction towards the legal payment time and application of late payment interest if the target is not respected; • Limited duration (agreement should not go beyond 1 January 2012). • Agreements reached before 1 March 2009 are validated by decree after receiving the opinion of the competition authorities. • This decree may extend the exemption payment time to all operators whose activities fall within the scope of professional organisations that have signed up to the agreement.

  10. NEGOTIATION FOR THE ELECTRICAL EQUIPMENT INDUSTRY • Who negotiates these exemption agreements? Professional organisations as "debtors" of "creditor" professional organisations • Within the industry, those requesting exemption: the FGME in association with FNAS and CGI + electricians and installers • After six months of negotiation, a sanitation-heating and electrical equipment agreement was signed on 10 December 2008. • Adoption of the following timetable: 70 days end of month (1 January 2009) 60 days end of month (1 January 2010) 50 days end of month (1 January 2011) 45 days end of month (1 January 2012) • Overall, the "electrical equipment and sanitation-heating" agreement covers 25 signatory professional organisations involved in all areas of the industry.

  11. ELECTRICAL EQUIPMENT INDUSTRY INDUSTRY UNICLIMA-GFCC + GIFAM + DOMERGIE + GIMES + Lighting trade union + SYCACEL + SYCABEL + SECIMPAC Non-signatory: Gimelec Breakdown of wholesale purchases made from companies represented by these organisations: 82% represented FGME Electrical equipment wholesalers FFB CAPEB Fedelec Serce FNSCOP

  12. AGREEMENT VALIDATION STAGES • 10 December 2008: Agreement submitted to public authorities • 19 March 2009: Opinion of competition authorities • 29 April 2009: Ministerial approval and extension decree • 4 May 2009: Explanatory leaflet put online - DGCCRF website

  13. CONCLUSION 1. Experience of negotiations: Negotiation of the exemption agreement with all partners has allowed for: - mobilisation of all parties involved in the industry around a shared objective • recognition by the public authorities of the electrical equipment industry 2. Eventual economic impact of the reduction in Terms of payment - Helping companies to reduce Terms of payment gradually - Reducing the risk of outstanding payments - Getting rid of distortions in competition - Structural WCR reduction and improved investment capacity.

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