How to deal with excessively long payment terms?

The vast majority of entrepreneurs operating in Poland, especially from the SME sector, encounter the problem of excessively long payment terms. Extending payment terms is a common practice used by contracting parties, whether in construction services, transport or the supply of goods. Ordering parties often use contract templates with payment dates after 90 or 120 days. Often you can also find provisions extending the already long payment date by another month in the event of failure to comply with some minor formalities.

How to deal with such challenges? Since the beginning of 2020, the legislator has made available several tools that may be helpful. One of the amended regulations contained in the Act of March 8, 2013 on counteracting excessive delays in commercial transactions (ie Journal of Laws of 2021, item 424) is Art. 7 sec. 2a, which indicates that “The payment deadline specified in the contract may not exceed 60 days, counted from the date of delivery of the invoice or bill to the debtor, confirming the delivery of goods or the performance of a service, unless the parties expressly agree otherwise in the contract and provided that is not grossly unfair to the creditor, with the exception of paragraph 2a “. Wherein paragraph 2a applies to transactions where the debtor of the micro, small or medium-sized entrepreneur is a large entrepreneur. In such a situation, a large entrepreneur cannot set a payment period longer than 60 days. How to assess whether a contract clause is not grossly unfair indicated in Art. 11a of the Act, according to which, when assessing, the entirety of the circumstances of the case should be examined, in particular:

“1) flagrant departures from good commercial practices that violate the principle of good faith and the principle of fairness;

2) the nature of the goods or services that are the subject of the commercial transaction, in particular the time usually needed for the sale of the goods by the debtor to third parties, or

 3) adjusting the schedule for the delivery of goods or performance of the service in parts to the schedule of meeting the corresponding parts of the cash benefit. “

Translating the above general guidelines into the realities of business situation that were conducted by our Law Firm and in which the courts recognized payment terms longer than 60 days as violating the Act and, as a result, ruled that our Law Firm’s clients were entitled to payment after 60 days for the service provided, for example the following particular provisions were considered grossly unfair:

 – “the date of payment of the amount of a single freight set on (…), i.e. more than 3.5 months after the actual performance of the contract by the carrier meant that the carrier credited the defendant’s business activity, who could freely dispose the funds allocated to the payment of remuneration for the carrier during this period, when he had the remuneration paid by the entity ordering the transport ”;

– “the provisions (…) of the order, which authorized the defendant to extend the payment deadline by another 60 days in the case of any complaints or entries in the CMR document, – taking into account the behavior of the defendant who did not report any claims to the claimant related to transport – as gross unfair to the carrier (…) “and ” (…) the contractual provisions extending the payment period were grossly unfair to the creditor, and were contrary to the socio-economic purpose of the contract and the principles of social coexistence, and above all were objectively unjustified, taking into account the type of service and the duration of the contract (only 3 days elapsed between loading and unloading the goods). It should be noted that the approximately 4-month period for the payment of the unit freight amount de facto meant that the plaintiff was crediting the defendant’s business activity ”;

The cited opinions of the courts indicate that if the payment deadline is set for more than 60 days or is extended unilaterally by the debtor, such deadlines may most likely be considered grossly violating the creditor’s interest. In the event of a court dispute, it is the debtor who will have to prove that the special circumstances justified such a long payment period. This issue was also considered by the courts in cases conducted by the Law Firm, and as circumstances justifying the extension of the payment deadline, the courts indicated these might be, for example: “(…)the complexity of the order, the need to produce goods from unique elements as the basis for extending the payment deadline, and thus proving that the extended payment term will in no way infringe the interests of the creditor”.

Following the remarks of the courts presented above, it can be concluded that if the debtor has set a payment term longer than 60 days, it will not be relevant for the maturity of the creditor’s claim in most commonly concluded contracts in business transactions, and only in the case of atypical specific contracts, the deadline longer than 60 days will be justified. As a result, the creditor will be able to demand payment of the due amount already after 60 days from the date of delivery of the invoice or bill, even in the case of a payment deadline exceeding 60 days resulting from the contract between the parties. If the claim becomes due after 60 days, it will mean that the creditor will also be able to claim the lump sum costs of pre-trial debt collection after these 60 days.

The possibility of demanding payment from the debtor of the receivables after the statutory payment deadline and before the contractual deadline may contribute to the improvement of the creditor’s liquidity and avoid crediting contractors at his own expense.