Payment terms, overdue invoices and the statute of limitations on a claim
Let’s start by explaining the basics – if you already know them, just skip to the next section of our article.
When issuing an invoice to a contractor, you need to specify the date by which he should pay for it. If you care about time, you can set a 7-day deadline for payment, but you must also take into account the customer’s capabilities. Contractors themselves, moreover, often ask for an extension of the deadline, for example, to 30 days, but there are also situations in which the invoice deadline is extended to 60, 90 or even 120 days at the request of the customer! There can be many reasons for this, and sellers most often agree to such an arrangement for a simple reason: they do not want to lose a contractor. Often the situation involves proven customers who have never had problems with timely payment of receivables.
An overdue invoice is a document whose due date has passed. An invoice issued on September 15 with a 30-day deadline becomes overdue on October 16. From that point on, the entity that issued the invoice can take collection action to recover the money.
A time-barred claim, on the other hand, is spoken of in the context of receivables that a counterparty can evade. Information about the standard statute of limitations can be found in Article 118 of the Civil Code. The statute of limitations is usually 6 years, but for claims for periodic benefits and claims related to the conduct of business – only 3 years.
Important!
The end of the statute of limitations is the last day of the calendar year in which 3 or 6 years pass from the conclusion of the transaction, An exception to this rule is claims in which the statute of limitations is less than two years.
What can an entrepreneur do when the due date on an invoice has passed?
Now let’s return to the question we asked at the very beginning of the article. It is obvious that the seller wants to recover the money owed to him as soon as possible. In order to do this, it is necessary to take debt collection measures – however, behind this threatening-sounding term there are more than just “aggressive” methods, to which the counterparty may react in the opposite way to what is expected. Let’s start with the simplest, and often very effective, solution.
Customer contact
One of the most common reasons why contractors do not pay on time is… forgetfulness. We are all human, and overlooking an invoice or its due date can simply happen. That’s why the first form of debt collection should be an attempt to get in touch with the customer. Write an e-mail or make a phone call if your relationship with the customer permits this form of communication. If you have opted for the email form, wait two or three business days and only if you do not receive a response within that timeframe, move on to the next point.
Call for payment
If a simple attempt at contact remains unanswered, it’s time for more formal steps. Send your customer a demand for payment. The ideal form in this case will be a traditional letter – obligatory registered mail. In this way you will give your counterparty another chance to settle the obligation, and at the same time protect yourself in case of a court case. In court, the fact that you acted in good faith and first made an attempt to settle the matter amicably may be of considerable importance.
How do you prepare a summons for payment?
Prepare a simple letter that includes the following:
- Creditor (your company) and debtor (contractor) data,
- A description of the emergence of the liability, data that allow the identification of the sales document,
- words: “I call on [nazwa podmiotu] to pay the amount of [kwota wynikająca z zobowiązania] within X days.
- bank account number for transferring the amount due,
- Caption.
It will also be good to title the document appropriately. Usually, a large caption that reads: “Call for payment” at the top of the page.
Entry in the register of debtors
If your attempt has been unsuccessful, you have the right to report the debtor to any of the debtor registries operating in Poland. These organizations collect information on debts, and entries in their registers are often used to assess the creditworthiness of individuals and entities.
You can report information about the resulting debt to:
- Credit Information Bureau,
- ERIF Economic Information Bureau,
- InfoMonitor Economic Information Bureau,
- National Debt Register.
This is where the possibilities of so-called soft debt collection end. If the debtor remains deaf to subsequent letters, e-mails, phone calls, or even a report to the debtors’ registry, you can file a lawsuit against him, which may – albeit after a long time – lead to a writ of execution with an enforcement clause, and consequently to the recovery of money.
How do you take care of your company’s liquidity and protect yourself from debt?
There is no doubt that going to court can seriously damage relations with a customer. On the other hand, it is worth asking ourselves whether it is beneficial for our company to maintain a business relationship with a contractor who not only fails to pay on time, but also evades payment despite repeated calls.
Another issue to consider is the inevitable passage of time. It can take months, if not years, before going through all the steps of soft debt collection and then a lawsuit takes place. That’s why it’s a good idea to protect your company in advance against the loss of liquidity.
Five steps to a financially liquid enterprise
In order not to have to worry about a possible loss of liquidity, you should put in place a few good practices in your company – following them will make worrying signals much easier to detect, and your business will always already have access to the funds you need.
Monitoring of receivables
Do not follow the rule: issue an invoice and forget about it. Every receivable should be checked regularly. This way you will know when it starts to approach its due date. Reliable monitoring will make it easy to see which contractors are reliable and pay on time, and which ones are late. If you monitor your receivables, you will immediately notice when any of your invoices are not paid on time, so you can react faster and get your money back faster.
Emphasis on short payment terms and careful selection of contractors
A sizable portion of your customers will welcome long payment terms, but you shouldn’t always offer them. You know your business best yourself, so you know whether you can afford to issue invoices with 60-day payment terms. Emphasize punctuality when negotiating with contractors, and if you know that a customer is sometimes unreliable, consider whether cooperation with him is necessary for your company.
Cost analysis and optimization
The operation of a company usually generates a lot of costs. If there are too many of them, the profitability of the company decreases and its liquidity may be threatened. A good practice, used to avoid financial troubles, is to periodically analyze the expenses incurred and optimize them. Reducing the share of costs in the finances of your business also carries certain risks (such as reducing the quality of services or having a negative impact on employees and customers), but a properly conducted analysis will reduce the likelihood of unwanted consequences.
Cost optimization in a company is a complex process – check how to do it!
Online factoring or invoice financing
Are you in an inferior negotiating position and can’t afford to shorten invoice payment terms? Or maybe you’ve gotten your regular contractors used to you offering them distant payment terms and you don’t want to lose that competitive advantage? That’s perfectly understandable – and it doesn’t have to mean liquidity problems at all.
Entrepreneurs have been able to use online factoring for years. As part of the service, the factor receives access to a revolving factoring limit – an amount with which you can sell invoices issued to your customers in exchange for an immediate transfer to your account. By using online factoring, you provide your company with constant access to cash – all you have to do is submit as many invoices for financing as needed. The only limitation is the limit amount.
If you don’t need permanent financing or want to see how the service works in practice first, use invoice financing. With it you can finance a single sales document. You will receive the money in a few hours – you don’t have to wait until the contractor pays the amount due.
Tough debt collection
Factoring will help you take care of your liquidity in the long run, but if you are already having trouble maintaining it due to non-paying contractors, it is worth asking for help from a professional debt collection company, whose main task is to pursue receivables and recover money for unpaid invoices. The services provided by debt collection companies can prove especially valuable in situations where the debtor is deliberately pursuing a time-barred debt.
In an earlier part of this article, we explained what collection actions you can take on your own, without the help of a collection department or an external company, and without jeopardizing your relationship with your customer. However, sometimes this is not enough, and if you do not have an in-house collection department, further steps are worth carrying out in cooperation with professionals.
Want to know more about effective debt collection? Read our article!
