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Every invoice left unpaid beyond its deadline creates problems and potential risks for its issuer. Especially in new business relationships, this raises questions about the future, while substantial arrears can seriously harm the company's financial liquidity. It is therefore worth knowing how to respond to a non-paying business partner and what steps to take to recover the money owed. This article, “A business partner is not paying? Here is what to do!”, is a TaxCoach guide for all business owners who want to reduce the risk of customers failing to pay on time.
Before a business partner fails to pay: a contract protecting both parties' interests and checks before cooperation begins
Before turning to the part of the guide focused on actions worth taking after an invoice has not been paid on time, we must mention possible preventive measures, which should be considered before a payment problem arises.
The basic measure of this kind is undoubtedly properly drafting a contract that anticipates different scenarios and protects the interests of both parties to the transaction.
A properly drafted contract protecting the parties' interests sets out in detail matters such as remuneration, payment deadlines, earnest money or an advance payment, a guarantee, security over assets, late-payment interest and a declaration of voluntary submission to enforcement.
Such contractual provisions can help avoid many potential problems in business relationships and protect us against unpleasant situations involving non-payment for services performed or goods sold.
Another preventive measure before every transaction with a new business partner should be appropriate verification of that entity. This means checking the potential customer before cooperation begins in:
- The Central Register and Information on Economic Activity (CEIDG) or the National Court Register (KRS);
- The VAT taxpayers register, known as the white list;
- The EU VAT taxpayers register;
- The relevant tax office;
- The Register of Insolvent Debtors;
- An Economic Information Bureau (BIG), such as Economic Information Bureau InfoMonitor (BIG InfoMonitor), National Debt Register Economic Information Bureau S.A. (KRD), ERIF Debtors Register Economic Information Bureau S.A. (ERIF), or the National Economic Information Bureau (KBIG).
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What should you do when a business partner refuses to pay? A demand for payment
Has a verified customer failed to pay an invoice on time? Before taking legal action, it is worth discussing this with them and issuing a demand for payment.
A demand for payment is a formal request to settle the amount owed. It specifies the exact arrears (including any interest), the payment deadline and method, and the basis of the debt, such as a performed contract or an invoice issued earlier. It is also worth including a warning about the consequences of continued non-payment, such as referring the matter to court.
Although some case law indicates that merely delivering an invoice can be considered a demand for payment, this step is always worth taking before filing a claim.
Serving a demand for payment on an unreliable business partner may save time and the costs of possible court proceedings. It may also preserve good business relations with the customer, especially if non-payment resulted from an error or oversight rather than an intention to defraud.
Invoice still unpaid after a demand? Time to refer the matter to court
Has the customer failed to respond to attempts to resolve the dispute amicably, particularly the final demand for payment? It may be time to go to court. Although a court battle is uncomfortable for both parties, in some cases it may be the only way to recover the money owed.
A claim may be filed:
- Traditionally, through order-for-payment proceedings (regulated in Articles 4841 to 497 of the Code of Civil Procedure) or writ-of-payment proceedings (regulated in Articles 4971 to 505), which, if successful, end with the court issuing a payment order;
- Electronically, through electronic writ-of-payment proceedings (based on Articles 50528 to 50539 of the Code of Civil Procedure), where the court fee is just 1.25% of the value of the dispute, but no less than PLN 30, and documents are not attached to the claim but merely identified and described.
The business partner does not pay even after a payment order? Time for enforcement!
Remember that even a payment order obtained in court may not resolve the matter. An unreliable business partner may still refuse to pay all amounts owed for our services or purchased goods.
However, such a debtor evading payment must now expect the case to be referred for enforcement proceedings.
This requires a written application to the chosen bailiff to initiate and conduct enforcement, with the original final court judgment attached.
If enforcement is to be carried out against the debtor's real estate, choose a bailiff attached to the court where that property is located.
Summary: a business partner is not paying? Here is what to do!
A non-paying business partner is a concern for many business owners seeking to maintain their company's financial liquidity. It is therefore worth knowing how to act and what to do to recover the money owed.
Start with attempts to resolve the dispute amicably, and always precede any electronic or traditional court claim with a final demand for payment. A payment order obtained from the court with an enforcement clause should then be attached to a written application to initiate and conduct enforcement.
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