How long payment terms can be entered in contracts?

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How long payment periods can be used in contracts between entrepreneurs? 7, 14 or maybe 30 days or more? What do the applicable regulations say? We explain the consequences of entering too long a payment period in the contract.

The Act on Payment Terms in Commercial Transactions

Entrepreneurs may enter long payment terms in their contracts. However, there is no provision stipulating that, for example, a contract with a term longer than 60 days is invalid, or that, for example, a 90-day period should be treated as a 30-day period.

So, long-term contracts are important.

The provisions of the Act on Payment Terms in Commercial Transactions have discourage from using extended payment terms. It introduces two "thresholds":

  • terms longer than 30 days,

  • terms longer than 60 days.

The purpose of this act is to discourage the use of excessively long payment terms in contracts between entrepreneurs.

An economically weaker supplier often does not have much choice and has to accept the long terms imposed on him by the contractor. Thanks to the act on payment deadlines in commercial transactions, it has the possibility to demand interest for the use of long terms.

This is a kind of compensation for the fact that he actually credits the business of his contractor by supplying him with goods with extended payment terms. Interest is due even if the payment was made on the agreed date. It is also to discourage economically stronger contractors (e.g. large retail chains) from imposing long payment terms.

Effects of time limits longer than 30 days

Payment periods not exceeding 30 days may be applied without any negative consequences.

What if the contract includes a period longer than 30 days? Then, the person who waits for payment may demand statutory interest from the other party to the contract, even though there has been no delay in payment. This is due to Art. 5 of the Act on

For what period is this interest due? They can be charged after 30 days from the date on which two conditions are jointly met:

  • the goods were delivered or the service was performed,

  • the other party has been served with an invoice or bill that confirms the delivery or performance of the service.

The interest in question may be charged up to the date of actual payment. What if the payment was made after the agreed date (i.e. there was a delay in payment)? Then, the interest in question may be charged only up to the date on which, according to the contract, the payment should have been made. It is not interest for late payment. If the payment was delayed in relation to the (already extended) deadline under the contract, other interest is due for the delay - for delay in payment.

Example 1.

Piotr Nowak is an entrepreneur that produces toys for children. He signed a contract for the sale of a large batch to a supermarket run by Company Y. The contract includes a 60-day payment period.

On March 1, Piotr Nowak delivered the goods with the invoice. According to the agreement, Company Y has 60 days to pay, which means that it should pay Piotr Nowak no later than 30 April. The invoice was paid on April 27.

Although Piotr Nowak received the payment on the agreed date, he has the right to demand statutory interest from Company Y. They can charge them for the period from April 1 (i.e. after 30 days from the delivery of the goods with the invoice) to April 27 (i.e. until the date of receipt of payment). This is to be a compensation for him for the fact that the contract uses extended payment terms. These are not interest for late payment, because there was no delay in payment.

Payment terms longer than 60 days - what are the consequences?

When reading the law on payment deadlines in commercial transactions, one gets the impression that deadlines longer than 60 days are prohibited. There is even a provision in it (Article 7 (2) of the Act), which explicitly states that the payment term specified in the contract may not exceed 60 days from the date of delivery of the invoice or bill to the debtor, confirming the delivery of the goods or the performance of the service. A longer period can be entered in the contract when "this arrangement is not grossly unfair to the creditor" (ie who is waiting for payment). This is due to Art. 7 sec. 2 and 3 of the Act on

Despite entering into the contract the payment period longer than 60 days, the contract will be valid (even if it is "grossly unfair" for the creditor).

So what are the consequences of entering a period longer than 60 days in the contract? What if the contract specifies a period longer than 60 days (counting from the date of delivery to the debtor of the invoice or bill confirming the delivery of goods or the performance of a service)?

We have to distinguish between two cases here:

  • if the determination of the payment deadline longer than 60 days was not "grossly unfair to the creditor"

In such a situation, there are no additional consequences of making an appointment for such a long period; you can apply the same effects as with the payment period longer than 30 days (discussed earlier), i.e. charge statutory interest for the period after the 30th day - until the date of payment (but no longer than the date on which, according to the contract, the payment should be take place).

  • if setting a payment period longer than 60 days does not "fall under" the exception referred to above (i.e. it cannot be explained by the fact that such a long period is not "grossly unfair to the creditor")

In such a situation, payment after 60 days from the delivery of the invoice or invoice confirming the delivery or performance of the service allows for the charging of penalty interest, higher than the statutory interest under the Civil Code. They are due until the date of actual payment.

Example 2.

Piotr Nowak has sold the goods to Company X. The contract includes a 90-day payment term. The company paid on time - the money was received on the 89th day after receiving the goods with the invoice.

Although Piotr Nowak was paid on the agreed date, he may, under the Act on Payment Terms in Commercial Transactions, demand the following interest:

  • from the 31st day (calculated from the delivery of the goods and the invoice) to the 60th day - statutory capital interest (equal to the sum of the NBP reference rate and 3.5 percentage points)

  • from the 61st day to the date of receipt of payment - higher than the statutory interest under the Civil Code "statutory interest for delay in commercial transactions" (equal to the sum of the NBP reference rate and 8 percentage points).

Extra time for testing the goods or services

The parties to the contract may provide for the examination of the goods or services in order to confirm the compliance of the goods or services with the contract. In such a case, the date of the examination specified in the contract may not be grossly unfair to the creditor and may not exceed 30 days from the date of receipt of the goods or service.

If the contract provides for the examination of the goods or services, this affects the calculation of the payment date. If the debtor has received an invoice or bill confirming the delivery of goods or services, before the date of commencement of the examination of the goods or service or during such examination, the payment date is counted from the date of completion of the examination of the goods or service.

Payment terms in contracts with public entities

The situation is somewhat different when the entrepreneur signs a contract with a "public entity" (Art. 8 of the Act on the subject).

What are the differences?

  1. the payment deadline in a contract with a public entity should not exceed 30 days (counted from the date of delivery of the invoice or bill);

  2. if the obligation to pay is a public entity that is a medical entity - the payment period should not exceed 60 days;

  3. a period in a contract with a public entity longer than 30 days is possible only if it is objectively justified by the property or specific elements of the contract, and the period does not exceed 60 days;

  4. if the payment term specified in the contract is longer than 30 days (counted from the date of delivery of the invoice or bill to the debtor, confirming the delivery of the goods or the performance of the service), and the condition of point 4 is not met, then the creditor who has performed his service after 30 days statutory interest for delay in commercial transactions (equal to the sum of the NBP reference rate and 8 percentage points).