Trade credits still available
Amended Act on payment deadlines in commercial transactions will not resolve the payment gridlock issue
Legal Alert No. 16/2015
The Polish Parliament works on amendments to the Act on payment deadlines in commercial transactions of 8 March 2013. The planned amendment is to further improve the situation of creditors, adjust Polish regulations to the EU laws and to clarity all ambiguous provisions.
Interest for unmet payment deadlines in commercial transactions – latest issue
The amendment introduces new interest calculation mechanisms both in business-to-business relations and in business-to-consumer transactions (changes will also pertain to the provisions of the Civil Code).
So far the act on payment deadlines in commercial transactions determined interest for untimely payment equal to the amount of default interest determined under Article 56.1 of the Tax Ordinance.
- Higher default interest
Based on amended regulations untimely payment of receivables in B2B transactions entitle the creditor to charge “statutory default interest in commercial transactions” equal to the reference rate of the National Bank of Poland increased by eight percentage points. Therefore, default interest will be higher.
The reference rate of the National Bank of Poland constituting the basis for determining statutory default interest in commercial transactions will be determined twice a year.
In case of contractual payment deadline exceeding 30 days, the creditor will still be entitled to charge statutory interest for the period after the 30-day deadline calculated from the date of provision of a supply and serving the invoice or bill (by the maturity date). However, when amendments to the Civil Code come into force, in such a case statutory interest will be due in the amount equal to the reference rate of the National Bank of Poland increased by three percentage points.
- Organizing an interest calculation system in transactions concluded under the civil law
Additionally, the Civil Code will introduce a category of default interest in B2C transactions. Such interest will be due in the amount equal to the reference rate of the National Bank of Poland increased by five percentage points.
The entire interest calculation system in transactions under the civil law will be organized.
- New usury limit mechanism
New maximum interest rate calculation mechanism will also be modified. Amendments to the Civil Code will set a different usury limit for default interest and ex contractu interest, i.e. interest arising out of legal actions carried out in line with a contract:
· maximum amount of default interest arising from legal action shall not exceed twice the amount of statutory default interest p.a.;
· maximum amount of interest arising from legal action shall not exceed twice the amount of statutory interest.
Maximum interest arising from legal action will be considerably lower than maximum default interest.
Payment deadlines in commercial transactions exceeding 60 days still possible
- New admissibility criteria for the application of longer payment deadlines
The amended law will modify the list of admissibility criteria for the application of payment deadlines exceeding 60 days from the date a debtor has been served an invoice or a bill for goods or services supplied. Under the amendment, the longer deadline may be applied only if it is not deemed flagrantly unjust for the creditor. When assessing whether contractual terms are flagrantly unjust, all related circumstances should be considered, in particular flagrant disregard of best practices and the characteristic of goods or services.
- Limitations on payment in portions
The amendment has also been intended to eliminate solutions used by companies to actually extend payment deadlines to more than 60 days. According to the bill, a contract may specify a payment schedule of a cash consideration in portions only if such a solution is not flagrantly unjust for the creditor.
- Invoice or billing date – not negotiable
Under the amended regulations the date of the invoice or bill confirming supply of goods and services shall not be subject to negotiations between the debtor and the creditor.
The changes, however, will not eliminate all lawful solutions applied by entrepreneurs to extend the actual payment deadline beyond 60 days.
Actual payment deadlines in commercial transactions will not be shortened
The original objective of the Act on payment deadlines in commercial transactions was to counteract payment gridlocks. The goal, however, has not been achieved yet. Despite legal risks related to debtors, entrepreneurs still widely use payment deadlines exceeding 60 days. Many debtors also fail to make timely payments. It results from the fact that only an insignificant group of creditors manage to exercise their rights resulting from the Act. In fear of losing good relations and contracts many entrepreneurs would prefer to agree to late payments than to claim interest and damages, at least if the arrears are insignificant.
The amendment does not seem to considerably change the situation. The risk of higher interest, however, may positively affect payment discipline of some debtors.