We may recently observe that entrepreneurs encounter problems to maintain financial liquidity. And since turnover credits are rather difficult to obtain there is a permanent deficit of cash on the market. As a consequence entrepreneurs try to impose distant terms of payment on their contractors. However even if parties agree to postpone the term of payment that does not exclude interests on the payment.

Polish act on payments in commercial transactions of 12 June 2003 year (Journal of Laws No. 139 Item 1323 with latter amendments) applies to all transactions on supply of goods and services concluded between entrepreneurs, farmers or a branches or a representative offices of foreign entities. The scope of transactions, which are governed by the act is vast, as the term of ?goods and services? should be construed broadly ? similarly to its construction applicable on field of VAT. The main aim of the act is to prevent delays in payments in commercial transactions and to protect smaller businesses from unfavourable conditions regarding payments imposed on them by their partners, which hold stronger position on the market (e.g. malls, main contractors in construction projects).

The general idea of the act is to enable the supplier of goods or services who fulfilled his contractual obligations to receive interests on payments that did not yet become due. It means that even if the receiver of goods or supplies is not yet in arrears because the agreed term of payment is still to come, he is obliged to pay statutory interests on that payment. Moreover if a professional entity receives goods or supplies from another professional and falls in arrears with payment, it must pay higher interests than statutory interests paid by a regular entity. Parties may not exclude provisions of the act as it is binding law. The act is particular law to general provisions of Polish Civil code, that provide for interests on obligations that are assumed by entities other than professionals.

The provides for differently with respect to transactions with no fixed term of payment and a term of payment that exceeds 30 days. If no term of payment was agreed upon by the parties the supplier of goods or services is entitled to statutory interests on payment from 31st day from the day in which he fully performed his obligation. In this case interests are due regardless of whether he summoned his debtor to fulfil his pecuniary obligation – delivering him an invoice – or not.

On the other hand delivering an invoice is necessary for the supplier of goods or services to demand statutory interests, if the parties did settle a term of payment in the agreement but the term exceeds 30 days. In this variant the creditor who supplied goods or services may demands interests from the 31st from the day when two conditions were met: goods or services were supplied and their receiver obtained an invoice from the supplier. The statutory interest rate being currently in force is 13 % per annum (by virtue of regulation of Council of Ministers).

For example: A finished refurbishing office of B on day 1st. In the agreement A and B agreed that B shall pay the fee for refurbishment on 90th from when the service is performed. A delivered an invoice to B on day 13th. This means that on day 44th 30 days passed from delivering an invoice and performing service. Consequently A may demand statutory interests of 13% from day 44th until the day of payment ? day 90th.

As it was stated meeting the abovementioned conditions enables the supplier to claim statutory interests on payment for the period prior to the day of maturity of the payment stipulated in the parties? agreement. Higher rate of interests is applicable to due payment when the receiver of goods or services actually falls in arrears with payment. In this event there applies the interest rate for tax arrears on the level indicated in section 56 of Polish Tax Ordination (uniform text in Journal of Laws, 2005 y. No. 8 Item 60), which is higher than statutory interest rate ? currently 14,5 % per annum. Of course parties may agree that higher interests are due on payment, when the debtor is in arrears ? interests rate for tax arrears is applicable if parties made no other settlements.

For example: If day 91th came and A receivable was not satisfied A may demand interests of 14.5 %

To summarize holding capital after receiving goods or services results in obligation to pay interests, which according to law cannot be excluded by virtue of an agreement. That is why designating distant terms of payment in agreements for supply of goods and services may temporally increase financial liquidity of an enterprise but on the long run it does not pay up. At least that was the legislator intention. However, frankly speaking there are ways to avoid rigors imposed by the act. But that is yet another issue.

This entry was posted on Friday, 27-03-2009 at 11:17 by Adam Jodłowski and is filed under How to invest in Poland. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.