How to reduce payment congestion?

Delays in payment of invoices by contractors have been a nightmare for entrepreneurs for many years. They have a negative impact on companies' repayment of their own liabilities regardless of the size of their business, limit their investment opportunities and contribute to the costs associated with handling past dues.

The purpose of the regulation presented by the Ministry of Entrepreneurship and Technology is to provide greater legal protection for creditors, inter alia through changes in civil procedure, administrative and tax law.

Introduction

The Government Legislative Center has published a bill to amend certain laws to reduce payment congestion[1].

The project promoter draws attention to the reasons for the changes, citing the European Payments Report 2017 2 , tho 78% entrepreneurs receive payment only after 30 days from the fixed deadline and in the case of 13% This time extends to 60 days.

Taking into account the average payment period on the invoice, this means that the company's cashier does not have any funds due by 2-3 months. According to nearly half of the entrepreneurs involved in the study, their targeted counterparties delayed payments.

The study also shows that In 2017 52% Polish companies had to adopt conditions dictated by the other party for unduly long payment terms terms. The average non-payment period for invoices was among micro-entrepreneurs 3 months and 12 days and in large companies – 2 months and 21 days.

Accelerating and simplifying recovery procedures

The draft proposes a number of significant changes to the Code of Civil Procedure (hereinafter the Code of Civil Procedure)[3].

It states that in the case of commercial transactions claims referred to in the Act of 8 March 2013 time limits for payment in commercial transactions 4 not exceeding 75,000 PLN, the court shall issue a payment order on the basis of the accompanying contract and proof of service to the debtor of the invoice or account if the reason for the similar fulfilment of the mutual benefit.

Furthermore, in this order for payment, the court of its own motion will judge the claimant’s interest for delay in commercial transactions[5].

Entrepreneurs should welcome the provision 6 , according to which the court shall issue the order for payment and in the absence of grounds for issuing it, the President shall appoint a hearing or a secret sitting no later than before the expiry of: 2 months from the date of the application or from the date of the deficiency of the application or 14 the days from the date of the application and, if there were formal deficiencies in the application, from the date of their removal, depending on the type of cases.

Changes in the tax base on creditors and debtors

The proposal proposes amendments to the Personal Income Tax Act 7 , according to which the basis for calculating the tax may be reduced by the value of the claim resulting from a commercial transaction if the claim has not been settled or disposed of within the time limit 120 the date of expiry of the payment period specified in the invoice (account) or contract, and as far as debtors are concerned, this basis will be increased by the value of the obligation on a commercial transaction if the obligation has not been settled within the time limit 120 days from the date of expiry of the payment deadline specified in the invoice (account) or contract for the settlement period in which it expired 120 day from the date of expiry of that period[8]. Period 120 days will be counted from first on the day following the date of expiry of the deadline specified in the invoice (account) or contract[9].

If the claim is regulated or disposed of, the creditor will be required to increase the tax calculation base or to reduce the loss in settlement for the settlement period in which the claim is regulated or disposed of. If the obligation is regulated, the debtor will reduce the basis for the calculation of the tax or increase the loss in settlement for the settlement period during which the liability was settled.

Similar provisions in the project 10 concerning the Corporate Income Tax Act[11].

No longer long payment terms in contracts with counterparties

In the justification of the project, attention is paid to the imposition by stronger market players, larger companies, long payment times for invoices issued. Therefore, in the Commercial Transaction Payment Deadlines Act

on 8 March 2013 an amendment is proposed that, if the parties to a commercial transaction, excluding a public body that is a medicinal entity, have provided for a contractual payment period longer than 30 days, the creditor will be able to claim statutory interest after expiry 30 days, calculated from the date on which the debtor is provided with an invoice or an account confirming the delivery of the goods or the execution of the service, until the date of payment, but no longer than the date on which the cash is due[12].

In addition, the time limit laid down in the contract, with the exception specified, may not exceed 60 the days, calculated from the date of delivery of the invoice or account to the debtor, confirming the delivery of the goods or the performance of the service, unless the parties to the contract expressly agree otherwise and provided otherwise. that this finding will not be grossly unfair to the creditor[13].

Summary

The new regulation is expected to enter into force 1 June 2019, except for the provisions on amendments to tax laws to apply from 1 January 2020 Of course, the content of the bill itself will not prevent entrepreneurs from unfair action by the other party to the transaction, if it repeatedly delays the timely payment of invoices or even avoids the fulfilment of its obligations.

However, the new rules should reduce the phenomenon of late payment and prevent in practice abuse of contractual freedom. They should also improve the liquidity of companies.

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1 Draft law on 14 September 2018 amending certain laws to limit payment congestion, as published in the Government Legislative Centre 20 September 2018; http://legislacja.rcl.gov.pl/docs//2/12316111/12535086/12535087/dokument358723.pdf 2 European Payments Report 2017 – study prepared by Intrum Iustitia.

3 Act of 17 November 1964 – Code of Civil Procedure, i.e. Journal of Laws of 2018, item 1360 as amended 4 Law on payment deadlines in commercial transactions with 8 March 2013, i.e. i.e. Journal of Laws of 2016, item 684 as amended 5 Draft law on 14 September 2018, op. cit., Article 1(1), according to which in k.p.c.

is added under Article 485(2b) and 2c. 6 Draft law on 14 September 2018, op. cit., Article 1(2). 7 Act of 15 February 1992 on income tax on individuals, i.e. Journal of Laws of 2018, item 1509. 8 Draft law on 14 September 2018, op. cit., Article 2. [9] Ibid. 10 Draft law on 14 September 2018, op. cit., Article 3.

11 Act of 15 February 1992 corporate income tax, i.e. Journal of Laws of 2018, item 1036 as amended 12 Draft law on 14 September 2018, op. cit., Article 10(3). 13 Draft law on 14 September 2018, op. cit., Article 10(4).