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The last few months have been a period of intensified actions of the President of the Office of Competition and Consumer Protection (UOKiK), among other things, with regard to counteracting payment backlogs - a new responsibility assigned to the President of UOKIK in 2020. The regulations on payment backlogs affect many areas of the retail sector, which is why it is worth taking a closer look at their importance and impact.
Payment backlogs – what we know at this point
The amended provisions of the Act of 8 March 2013 on Counteracting Excessive Delays in Commercial Transactions concerning payment backlogs came into force on 1 January 2020. After nearly six months of the provisions being in force, the UOKiK President, the authority appointed to deal with matters relating to payment backlogs, began taking active measures to tackle backlogs. By the end of 2020 the UOKIK President had initiated over 100 proceedings concerning excessive payment delays in commercial transactions.
On 19 February 2021, the UOKIK President announced that the first four decisions on payment backlogs have been issued and imposed two fines of nearly PLN 500.000 each (in the transport industry) and waived the fine in two other cases (in the delivery industry and the sale of electronic goods industry). The other proceedings are still ongoing. Many of them concern entities operating in the retail or related industries.
The payment backlog regulations are important for supply chain management, payment policies, invoicing and settlement practices, the use of financial tools (e.g. factoring) and, indirectly, they may have an impact on marketing, trade marketing and negotiating practices.
Key changes introduced by the amendments to the Act:
- rules of calculating interest for late payments in commercial transactions;
- maximum permissible payment terms in use between large enterprises and micro-, small- and medium-sized enterprises (maximum 60 days);
- restricting the use of payment terms of more than 60 days in other commercial relationships to situations where the use of such terms is not grossly unfair;
- defining the occurrence of excessive delays in making payments (total of paid late or overdue payments exceeding PLN 5 million for proceedings initiated in 2021 in three consecutive months – PLN 2 million for proceedings initiated in 2022);
- the possibility that the UOKiK President may initiate proceedings and impose a fine in the event of excessive delays in making payments;
- the obligation to report on the balance of payments and the structure of the payment terms used by 31 January each year.
Conclusions from observations of the UOKIK’s measures to date:
The following conclusions can be drawn from the discussions to date on the scope of application of the Act and from information published by the UOKIK President:
- proceedings conducted by the UOKIK President are highly complex. The scope of data that has to be presented in the course of the proceedings includes detailed accounts of all commercial transactions carried out in the period under examination (it may even concern several thousand transactions), and often requires the collection of data from many sources. The preparation of the payment schedules in the period under examination is a tedious and time-consuming process, often involving employees from many departments. Their examination by the Office is also a complex process;
- the level of complexity is significantly increased by the entrepreneurs' use of financial tools such as factoring or offsetting payments;
- invoicing, handling complaints or payment withholding practices when deliveries are disputed or invoices are adjusted require case-by-case descriptions of the situation, which is a major challenge when large volumes of transactions are reported;
- the final balance of payments that are unpaid or not received after the due date is key to assessing whether a fine may be imposed on an enterprise or whether the UOKIK President will waive its imposition under Article 13v, clause 6 of the Act;
- intra-Group settlements and the use of group financial management tools (e.g. cash pooling) may have a significant impact on the entrepreneurs’ balance of payments and payment practices thereby exposing the company to excessive payments delays and grounds for the imposition of a fine.
The coming months will show how the UOKIK President deals with more complex cases of supply chain settlements. Moreover, there is already talk of the need to amend the Act to address intra-Group settlements or the use of factoring services.
From the aforementioned legal obligations, the actions taken by the UOKIK President, and the practical issues arising from the pending proceedings, it appears that proceedings concerning payment backlogs will become one of the key aspects that managers of enterprises in the retail industry will have to take into account as part of the company’s operations. This concerns both financial and commercial practices as, well as procedural and technical preparations to meet the statutory obligations or to cooperate with the UOKIK President in the course of potential proceedings.
Bearing this in mind, it is advisable for entrepreneurs to take selected actions that may reduce the risk or improve the performance of their obligations under the Act. These include, among other things:
- examining the company’s payment practices (e.g. procedures for recording invoices and making payments, comparing payment deadlines specified in invoices with contractual terms, how disputed invoices are recorded);
- implementing organizational improvements or new reporting tools (e.g. recording offsets/deductions);
- developing standards and guidelines for handling and reporting cases of late payment internally (e.g. in the case of complaint procedures or refusal to accept invoices).
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