Business owners usually make substantial mistakes, which further make it impossible for professional debt collecting companies to recover the debt. A statement of claim downloaded from a website will not always suit a given problem and not every signed document will suspend the limitation period for the claim.
Law on the side of creditors
Amendments to the law governing debt collectiongave a big nod to creditors. The Act on Terms of Payment in Commercial Transactions of 08 March 2013 (Journal of Laws of 28 March 2013) provides the creditor with the possibility to recover debt collection costs in case the debtor failed to make payment on time, under the Act alone. The Act introduces two types of debt collection costs a creditor may demand from his debtor, regardless of the unpaid amount. However, it does not apply to all debts. First, it relates primarily to agreements between entrepreneurs, meaning that consumers and entrepreneurs whose debtors are consumers will not benefit from it.
The Act applies to commercial transactions involving solely parties which are:
- entrepreneurs within the meaning of Article 4 of the Act on Freedom of Economic Activity of 2 July 2004 (Journal of Laws of 2010, No. 220, item 1447, as amended 3));
- entities conducting the activity referred to in Article 3 of the Act on Freedom of Economic Activity of 2 July 2004;
- entities referred to in Article 3 par. 1 of the Public Procurement Law of 29 January 2004 (Journal of Laws of 2010, No. 113, item 759, as amended4));
- freelance professionals;
- branches and representative offices of foreign businesses;
- foreign entrepreneurs referred to in Article 1 of the Act on the Rules of Conducting Economic Activity in the Field of Small-Scale Manufacturing in the Territory of the Polish People’s Republic by Foreign Legal and Natural Persons of 6 July 1982 (Journal of Laws of 1989, No. 27, item 148, as amended5)), running their enterprises in Poland;
- entrepreneurs from the member states of the European Union or the member states of the European Free Trade Association – parties to the European Economic Area orthe Swiss Confederation.
The agreement must relate to a commercial transaction. The Act contains a definition of a commercial transaction and so, in accordance with Article 4:
- commercial transaction – an agreement whose purpose is to supply goods or provide a service for payment, if the parties referred to in Article 2 conclude it in connection with the activity they are engaged in; (…)
The Act also excludes specific types of agreements from its application. These exclusions are listed in Article 3 of the Act. The Act does not apply to:
- debts which are the subject of proceedings conducted on the basis of the Bankruptcy and Reorganisation Law of 28 February 2003 (Journal of Laws of 2012, item 1112 and 1529, and of 2013, item 355);
- agreements under which banking activities within the meaning of Article 5 par. 1 and 2 of the Banking Law of 29 August 1997 (Journal of Laws of 2012, item 1376, 1385 and 1529) are performed;
- agreements between parties which are exclusively entities from the public finance sector within the meaning of public finance laws;
- supplies and services to which Article 346(1)(b) of the Treaty on the Functioning of the European Union applies.
Necessary formalities
What does it mean in practice? Where this involves entrepreneurs engaged in the sale of goods (e.g. construction materials) to other entrepreneurs, or entrepreneurs providing paid services (e.g. IT network installation) to other entrepreneurs (in both cases: where this falls within their economic activities), in a situation where the debtor fails to pay for the goods delivered or the service provided, the creditor may charge the costs of collecting such a debt to the debtor. It is crucial, however, that the creditor is able to document that he performed the agreement on his part, or, to put it briefly, that he sold the goods or provided the service. Regrettably, to make the transaction as smooth as possible, entrepreneurs often ignore formalities related to the agreements they should conclude before the sale or the provision of the service. The moment the contractor proves unreliable, those “unnecessary formalities“become necessary to successfully pursue the debt in court.Please note that such a confirmation of the performance of the agreement by the creditor can be in the form of, for example,a confirmation of delivery of the goods to the debtor, a consignment note, a work acceptance protocol, an order placed or a confirmation of the correct completion of an order or a service.Unfortunately, the fact that a VAT invoice was issued is not always sufficient evidence in a debt recovery case.
Debt collection costs on the part of the debtor
The Act introduces two types of debt collection costs a creditor may demand from his debtor, regardless of the unpaid amount. The first type are lump sum costs amounting to EUR 40, converted into Polish zlotys at the euro average exchange rate announced by the National Bank of Poland on the last business day of the month preceding the month in which the payment became due (Article 10 par. 1 of the Act). The equivalent is due to the creditor each time the debtor misses the payment deadline set in the agreement or the invoice, regardless of the costs actually incurred. The second type are costs exceeding the equivalent of EUR 40 (Article 10 par. 2 of the Act). The creditor who wants to pursue debt collection costs exceeding the equivalent of EUR 40 from the debtor has to prove that those costs have been incurred. It seems that it will be sufficient to present, for example, a list of the costs incurred: proofs of posting requests for payment to the debtor (postage list), phone calls made (itemised phone bills), anda calculation of the amount of time devoted by the employee responsible for debt collection at the creditor‘s company, converted to FTE. Such a list should be attached to the statement of claim in which we demand reimbursement. What can be problematic is the time when you may settle costs related to debt collection services rendered by a debt collecting company.
My experience is that creditors charge an accounting note for pursuing claims, including commission fees, to their debtors, referring to the Act on Terms of Payment in Commercial Transactions. In practice, debtors, afraid of further proceedings in court, pay the costs incurred by the creditor. Obviously, if invoiced, the costs incurred by the creditor due to his employing a debt collecting company, for example, related to preparing a statement of claim, can be included in the earlier statement of claim. Therefore, the new Act on Terms of Payment in Commercial Transactions makes it possible to transfer debt collection costs in full to the debtor, which is a great convenience for creditors, particularly those operating in a sector that forces them to offer low-margin product. Incurring debt collection costs – either on one’s own, by employing people to collect debts, or through an external company – causes the creditor not to make any money on transactions followed by debt collection, because the costs ‘eat up’ the margin. Contractors cannot agree between themselves that the provisions of the Act on Terms of Payment in Commercial Transactions are not applicable to them, and if they did, such a provision would be invalid. The primary purpose of the Act is to neutralise payment gridlocks. We can only hope that charging extra costs exceeding statutory interest to unreliable contractors will be the incentive to pay invoices on time.
Taking into consideration the nod to creditors, we must remember, however, that the time we have to recover our debt is the chief element of success here, since law enables debtors to constantly evade payment. What is more, they can avoid liability for their financial obligations altogether. This is guaranteed by the provision about the limitation of claims, included in the Civil Code. So when does a debt become unenforceable? Read the next article to find the answer.
Monika Toczyńska – Audix Polska
Photo © Tatiana Pałucka
Source: Audix Polska
