Late payment is a risk that every company faces. If the amount of the invoice is significant, or if the phenomenon is repeated, the impact on cash flow can lead to real financial difficulties, or even jeopardise the survival of the company. It is vital to be familiar with the existing response mechanisms and to know when to use them. Formal notice to pay, which aims to get the debtor to pay its debt, is one of the main mechanisms.
What is a notice to pay?
This is a formal act in which a creditor asks his debtor to pay his debt within a specified period. A notice to pay is often the last attempt at amicably resolving a dispute before legal action is taken.
A notice is sent to the debtor with acknowledgement of receipt or through a court-appointed agent. The document must comply with certain formalities if it is to be admissible in court as proof of the preliminary proceedings provided for in the Code of Civil Procedure. The creditor must indicate:
- the date of issue
- the amount of the debt and the corresponding interest
- the factual and legal basis
- the payment term
Please note that a notice is not an official writ of execution: it cannot force the debtor to pay his debt without courts proceedings.
When should I send a formal notice to pay?
Sending a formal notice to pay the first time a payment is late can be counter-productive, by damaging the commercial relationship. In some cases, the delay may be the result of a simple oversight or a very temporary difficulty.
A formal notice to pay should therefore be reserved for serious defaults, following several amicable attempts to recover the money. It is especially necessary when the debtor does not give a clear answer as to his ability to settle his debt within a short period of time, or does not respond at all.
In practice, a period of 30 days is recommended before a formal notice is issued, which may be preceded by amicable reminders
An effective incentive
Even if it has no binding effect, a formal notice to pay is still of interest to a company experiencing difficulties in recovering an invoice, on several levels:
- It constitutes formal proof that the creditor has indeed attempted to recover its debt by amicable means, which is a prerequisite for filing a motion for a payment order.
- Due to its official nature, a demand for payment can lead to rapid debt recovery, prompting the debtor to pay in order to avoid lengthy and costly legal proceedings, the expenses of which would increase the outstanding debt.
- It can serve as a deterrent against any potential failure by the debtor to fulfill their payment obligation, demonstrating the creditor’s clear intent to use all available means to recover their claims.
What are the consequences of sending a notice?
When non-payment is due to a dispute regarding the amount claimed, the debtor may submit a response requesting clarification regarding:
- The very existence of the claim, which he has already paid or believes he does not have to pay;
- Amount due ;
- The payment deadline, if the debtor believes they still have time to pay the debt and that the notice of default was issued too early;
What are the alternatives to formal notice?
While a formal notice of default is useful in a given context and can sometimes be enough to get paid simply by sending a registered letter, it does have certain disadvantages: deterioration of the commercial relationship, no guarantee of payment and the cost of any legal recourse required.
Other means can then be considered as alternatives to be used wisely:
- Out-of-court reminders by email, post or telephone
- The negotiation of a payment schedule, which establishes a framework for debt collection in the mind of the prospect, while facilitating his own financial management by setting up a staggered settlement of the debt.
- Mediation, which can help to reach an agreement through the intervention of a neutral third party, when the commercial relationship has deteriorated.
- Using a debt collection company, which saves time in return for a commission. In fact, it is preferable to call on the services of a debt collection professional from the outset, at least for customers at risk of defaulting.
Notice is a useful legal tool, but its use must be measured and supervised. It should also be remembered that the best way to avoid any dispute is to commission a commercial survey of the customer concerned at the start of the relationship, to ensure that he or she is not accustomed to payment difficulties.
Want to find how you can better collect your debts? Ask our specialists!
