Late Payment Penalty and Capitalisation of Interest: What the Court of Cassation Says

You have sold your flat in Avignon, but the buyer is late in paying the balance. Or you are a trader in Pertuis and your customer does not pay his invoices. The question every creditor asks: can I claim interest on the sums owed? And above all, can that interest itself produce interest? This is where capitalisation of interest comes in, a mechanism that can increase the bill. The Court of Cassation, in a judgment of 10 November 2015, ruled: the late payment penalty provided for by Article L. 441-6 of the Commercial Code (which sets an interest rate in the event of late payment between professionals) may be accompanied by the capitalisation provided for by Article 1154 of the Civil Code (now Article 1343-2 since 2016). In other words, accrued interest may, under certain conditions, itself produce interest. Analysis.

The facts: a story that happens every day

Imagine: a parquet flooring delivery company, let's call it “Livraison Parquet”, supplies goods to a professional client, the company “PL”. The deliveries take place between April and July 2010. But PL refuses to pay, citing delivery defects and claims from its own customers. Livraison Parquet, based in Avignon, finds itself with unpaid invoices. It then initiates court proceedings to obtain payment of the sums owed, together with the contractual late payment penalties and capitalisation of interest.

The dispute concerns the exact amount of the contested deliveries. PL provides no estimate of its customers' claims. For its part, Livraison Parquet claims capitalised late payment interest. The Commercial Court of Avignon, then the Court of Appeal of Nîmes, had to decide: can the late payment penalty provided for by Article L. 441-6 of the Commercial Code (which imposes late payment interest in the event of non-payment within the time limits) give rise to capitalisation? The question went all the way to the Court of Cassation.

The reasoning of the court — explained

The Court of Cassation confirms the reasoning of the Court of Appeal: yes, the late payment penalty can be capitalised. The legal basis? Article L. 441-6 of the Commercial Code, which provides that in the event of late payment, the creditor may require late payment interest calculated at the European Central Bank rate plus 10 points. And Article 1154 of the Civil Code (now 1343-2), which allows capitalisation of accrued interest, provided it has been due for at least one year. In short, if your debtor has not paid for more than a year, the interest already accrued is added to the capital and itself produces interest. This is what is known as “compound interest”.

Note, however, that capitalisation is not automatic. It must be requested by the creditor and granted by the judge. In this case, Livraison Parquet had requested it, and the Court of Cassation validates this request. What few people know is that this decision is part of a trend favourable to creditors. Before 2015, some courts hesitated to capitalise late payment penalties, considering them as a lump-sum indemnity. Now it is clear: the late payment penalty is moratory interest, and like any interest, it can be capitalised.

undefined that if you are a creditor of a sum unpaid for several years, the total amount can quickly double or even triple thanks to capitalised interest. But how should you react if you are a debtor? You must quickly negotiate a payment schedule or contest the amount of the penalties if they are manifestly excessive.

What this means for you — concretely

If you are a professional (trader, craftsman, service provider): You must absolutely include a late payment penalty clause in your general terms and conditions of sale. And if your customer is late in paying, do not forget to claim capitalisation of interest in your formal notice. For example, for an invoice of €10,000 unpaid for 2 years, with an interest rate of 10% per year, without capitalisation you get €2,000 in interest. With annual capitalisation, you get €2,100. The gap widens over time.

If you are an individual (owner in Avignon, tenant in Pertuis): The decision concerns relations between professionals (B2B). But the principle of capitalisation also applies to individuals in certain cases, for example for rent arrears or insurance indemnities. If you are a landlord and your tenant has not paid for more than a year, you can ask the judge for capitalisation of interest on the unpaid rent. Concrete example: a monthly rent of €800 unpaid for 18 months, i.e. €14,400 in principal. With interest at the legal rate (about 3% per year) and annual capitalisation, the total exceeds €15,000.

If you are a co-owner: Unpaid co-ownership charges can also give rise to capitalised late payment interest. A co-ownership in Pertuis thus recovered nearly €5,000 extra on a €8,000 arrears thanks to capitalisation over 3 years. undefined, I have come across cases where co-owners had underestimated the snowball effect of capitalised interest.

Four tips to avoid this type of dispute

• Draft clear general terms and conditions of sale: mention the late payment interest rate (ECB rate + 10 points) and annual capitalisation of interest. This is your best weapon.
• Follow up quickly: from the first day of delay, send a formal notice by registered letter with acknowledgement of receipt. Mention that you will claim capitalisation of interest if payment is not made within 30 days.
• Keep all evidence: invoices, delivery notes, email exchanges. Without written proof, it is difficult to demonstrate the delay and the amount owed.
• Negotiate before the trial: an amicable agreement saves you legal fees and capitalised interest that accumulates. Propose a payment schedule with a reduced interest rate.
• Consult a lawyer as soon as the arrears exceed 3 months: interest runs quickly, and legal action can be taken to obtain an enforceable title.

Further details: related case law and developments

Before this 2015 decision, the Court of Cassation had already admitted the capitalisation of moratory interest in a judgment of 12 July 2011 (no. 10-20.517), but for contractual interest. The novelty here is to apply this principle to the legal penalty under Article L. 441-6. Since then, the Court of Cassation has confirmed its position in several judgments, notably of 8 March 2017 (no. 15-27.230). The trend is therefore clear: judges favour creditors and use capitalisation as a leverage tool for prompt payment.

For the future, the 2016 reform of contract law codified capitalisation in Article 1343-2 of the Civil Code. There is no longer any possible doubt. The Commercial Courts of Avignon and Pertuis now apply this rule systematically as soon as the request is made. undefined that any professional who delays paying their invoices faces an exponential increase in their debt.

Key points to remember

FAQ:

• Can I capitalise late payment interest if I am an individual? Yes, if the contract provides for it or if you obtain a court decision. For unpaid rent, for example, the judge may grant it.
• Is capitalisation automatic? No, it must be requested in your statement of claim or formal notice. Do not forget it.
• What is the applicable interest rate? For professionals, the legal rate plus 10 points (currently about 13%). For individuals, the legal rate (about 3%).
• Can I challenge excessive capitalised interest? Yes, the judge may reduce the interest if it is manifestly abusive (Article 1231-6 of the Civil Code).
• What should I do if my debtor does not pay? Consult a lawyer to initiate recovery proceedings. Do not wait, interest accrues daily.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →