The European Commission would like to change the rules on deferred payment deadlines. Today, they are so liberal that some entrepreneurs have to wait up to three months to pay an invoice. The existing regulations are beneficial to large companies that impose such conditions on smaller suppliers.
In Polish business reality, deferred payment terms are not unusual: the party receiving the service or goods negotiates a long payment period, even three months. During this time, it is in fact financed by the seller – and it is an interest-free loan, so it is more advantageous than a bank loan. Deferred deadlines are not profitable for those who, despite proper performance of their part of the contract, have to wait several or a dozen weeks for payment. So why does he agree to this? Deferred payment terms are often a requirement of large contractors: they guarantee placing an order for a high amount, provided that payment is made later.
Payment backlogs. Big can do more
Therefore, it is a normal business risk on the part of the company that agrees to wait for payment. Unfortunately, it often leads to payment backlogs and solvency problems, because the company has its liabilities that it must pay on an ongoing basis. Payment backlogs are a problem not only in Poland, but also in the entire European Union, hence the initiative of the European Commission to implement amendments to the Act on late payments in force in the EU since 2011. The EC wants to tighten the regulations by introducing a regulation that would oblige companies to indicate payment terms on invoices of no longer than 30 days and provide for late payment penalties of at least EUR 50 for each commercial transaction.
The amendments planned by the EC are primarily intended to prevent large contractors from imposing unfavorable transaction conditions on small companies. At first, the directive would cover the largest companies and government institutions, and only a year later – micro-enterprises.
The regulation is expected to be approved in February 2024, and the plenary vote will take place two months later, in April.
Payment backlogs are a nightmare for entrepreneurs
For 68 percent companies, payment backlogs are a barrier to running a business. 1/5 do not pay contractors on time because they do not receive money from clients – according to the study “Overdue invoices in Polish enterprises” by Kaczmarski Inkass*. Moreover, at the end of this year, the amounts trapped in invoices issued in 2021 may be lost to companies. Up to PLN 121 billion is at stake. The solution is to order the debt to be collected and to conclude an agreement by December 31, in which the debtor acknowledges his debt and establishes a repayment plan.
The scale of financial problems is illustrated by the data from the National Debt Register. Polish companies have PLN 9.6 billion in arrears. The average debt of each of them is PLN 36.6 thousand. zloty.
Unpaid liabilities are such a serious obstacle to business that – according to a study by Kaczmarski Inkasso – every fifth company has no money to pay its business partners, 1/4 is forced to limit investments, and 19 percent raise the prices of their goods and services. 13 percent has problems with introducing products to the market and the same number of them experience deterioration of their image, which results in weaker financial terms of deliveries offered to them by contractors. Every tenth necessarily reduces employment and reduces employees’ salaries.
4 out of 10 surveyed companies assess delayed payments as a serious problem, of which 16 percent he thinks it’s “very big.” Settlement of liabilities with slippage is particularly difficult for the construction and trade industries.