Deeper into debt
Debt collection and reference agencies are warning that forcing recalcitrant payers to meet their obligations will be made impossibly difficult because of a new bill passed by the Sejm to the Senate. The critics say the proposed law will turn the problem of bad payers into a bureaucratic nightmare.
"It is a complete misunderstanding, and there is a possibility it will be dropped," said Katarzyna Kompowska, president of Coface Intercredit Poland and president of the Association of Debt Collecting and Credit Information Companies (ZFWiWG).
This poses acute risks to small businesses, as many of them are compelled to start pressing for their money when thirty- or forty-day invoice periods expire and still no money is sent for services provided. For small companies it may be lethal.
"It became a fashion not to pay," said Mariusz Wiszniowski, president of Izoterm, a producer of insulation material. "We take a risk every day and have to judge every customer very carefully."
New legislation regulating the circulation of information about bad debtors was approved by the Sejm on January 9 and submitted to the Senate. The small business sector looked for a law to tackle the problem of bad payers head on. The law calls for the creation of credit information offices (BIG) which will not be state institutions but commercial entities. They must be joint stock companies with a capital of at least e1 million, while obtaining, storing and circulating credit information must be their sole activities. Only the BIGs will be allowed to collect and circulate information about bad debtors, which is aimed at deterring the current practice of publishing black lists of debtors on the Internet. Any other entity that circulates such information may be punished with a fine of €7,500.
Nowhere in Europe is information about bad debtors monopolised and regulated by law, Kompowska said. Information about individual consumers ought to be regulated, but not about companies that do not pay. "We presented our critical opinion to the Sejm as an association, but our view as professionals was ignored," she said.
Critics say there will not be any central integrated system, but a series of independent BIGs, which may make them unworkable from the start. It is also possible that customers will have to go to all BIGs and pay each of them for the information they have.
Another argument is that existing credit information and company performance experts will not be allowed to collect or store information about bad debts. They will have to buy it from the BIGs, and then they will not be allowed to pass it directly to customers who order reports since it will be illegal for any entity other than a BIG to circulate the information about bad debtors. Therefore, customers will have to go directly to a BIG and pay twice.
Having once bought the information about a bad debtor, credit information companies will not be allowed to store it, even for the purpose of investigating the history of a debt. Every time they prepare a report, they will have to buy the information from a BIG office. Plus, there is certain to be a "period of chaos" between the moment the law goes into effect and the BIG offices actually operating, said Anna Gasidło of the law firm Miller, Canfield, Paddock and Stone.
Marcin Krzemiński, marketing director of Intrum Justitia, which offers receivables management services including debt collection, points to a lack of a coherent system and the fact that the responsibility and costs of debt collection burden the creditor, the opposite of what happens in most European countries.
"Our foreign colleagues are surprised when we tell them we negotiate the percentage of our fee with the client," Krzemiński said. "They are used to the situation that it is the debtor's headache to receive the post or pay the costs of debt collection, not a creditor."
The new law protects the debtor at the expense of the creditor, Kompowska added. It also imposes many restrictions and obligations on creditors who want to register their debtors in BIG offices. The likelihood is that many creditors will be deterred from bothering. Debt-collecting agencies will not be allowed to pass the information to a BIG office. They will have to advise their customers to do it.
"Knowing my customers and having 11 years experience in the market, I can predict that the law may turn out unworkable and dead," Kompowska said.
Other laws which passed with the object of improving debt collection have failed in their purpose, critics argue. In September 2001, for example, a law that allowed charging debtors with interest after 30 days of sending of the invoice, was passed. According to a 2002 report published by the Institute of Home Market and Consumption, only about 25% of companies believed that small local suppliers benefitted from this law, while almost a quarter of small companies and almost 50% of large ones believed that there were no beneficiaries at all.
According to Krzysztof Goliński of Grant Thornton and Patryk Małolepszy of Calan & Associates, the SMEs are afraid to charge interest rates because it would mean losing customers. Therefore, the law is practically dead, they said. Interest rates are now charged only when the case is taken to court. The threat of interest payments is also used as a negotiating tool during the conciliatory procedure.
Another problem for creditors is that they pay VAT and income tax the moment they send an invoice. One attempt to change the law introduced the possibility to settle VAT after the money is actually paid - but only for very small companies with up to €800,000 annual turnover. But it is rarely employed since contractors avoid suppliers using this type of VAT solution.
Krzemiński points out that debt collection does not remove the source of the problem. A good contract is always the first step and will often decide whether there will be future difficulty in collecting payments.
According to Mariusz Wiszniowski's experience, it is not only the companies which are in financial difficulties that don't pay. He once heard: "I do not know why we did not pay yet. You do not pursue it, so we do not pay."
"It is a complete misunderstanding, and there is a possibility it will be dropped," said Katarzyna Kompowska, president of Coface Intercredit Poland and president of the Association of Debt Collecting and Credit Information Companies (ZFWiWG).
This poses acute risks to small businesses, as many of them are compelled to start pressing for their money when thirty- or forty-day invoice periods expire and still no money is sent for services provided. For small companies it may be lethal.
"It became a fashion not to pay," said Mariusz Wiszniowski, president of Izoterm, a producer of insulation material. "We take a risk every day and have to judge every customer very carefully."
New legislation regulating the circulation of information about bad debtors was approved by the Sejm on January 9 and submitted to the Senate. The small business sector looked for a law to tackle the problem of bad payers head on. The law calls for the creation of credit information offices (BIG) which will not be state institutions but commercial entities. They must be joint stock companies with a capital of at least e1 million, while obtaining, storing and circulating credit information must be their sole activities. Only the BIGs will be allowed to collect and circulate information about bad debtors, which is aimed at deterring the current practice of publishing black lists of debtors on the Internet. Any other entity that circulates such information may be punished with a fine of €7,500.
Nowhere in Europe is information about bad debtors monopolised and regulated by law, Kompowska said. Information about individual consumers ought to be regulated, but not about companies that do not pay. "We presented our critical opinion to the Sejm as an association, but our view as professionals was ignored," she said.
Critics say there will not be any central integrated system, but a series of independent BIGs, which may make them unworkable from the start. It is also possible that customers will have to go to all BIGs and pay each of them for the information they have.
Another argument is that existing credit information and company performance experts will not be allowed to collect or store information about bad debts. They will have to buy it from the BIGs, and then they will not be allowed to pass it directly to customers who order reports since it will be illegal for any entity other than a BIG to circulate the information about bad debtors. Therefore, customers will have to go directly to a BIG and pay twice.
Having once bought the information about a bad debtor, credit information companies will not be allowed to store it, even for the purpose of investigating the history of a debt. Every time they prepare a report, they will have to buy the information from a BIG office. Plus, there is certain to be a "period of chaos" between the moment the law goes into effect and the BIG offices actually operating, said Anna Gasidło of the law firm Miller, Canfield, Paddock and Stone.
Marcin Krzemiński, marketing director of Intrum Justitia, which offers receivables management services including debt collection, points to a lack of a coherent system and the fact that the responsibility and costs of debt collection burden the creditor, the opposite of what happens in most European countries.
"Our foreign colleagues are surprised when we tell them we negotiate the percentage of our fee with the client," Krzemiński said. "They are used to the situation that it is the debtor's headache to receive the post or pay the costs of debt collection, not a creditor."
The new law protects the debtor at the expense of the creditor, Kompowska added. It also imposes many restrictions and obligations on creditors who want to register their debtors in BIG offices. The likelihood is that many creditors will be deterred from bothering. Debt-collecting agencies will not be allowed to pass the information to a BIG office. They will have to advise their customers to do it.
"Knowing my customers and having 11 years experience in the market, I can predict that the law may turn out unworkable and dead," Kompowska said.
Other laws which passed with the object of improving debt collection have failed in their purpose, critics argue. In September 2001, for example, a law that allowed charging debtors with interest after 30 days of sending of the invoice, was passed. According to a 2002 report published by the Institute of Home Market and Consumption, only about 25% of companies believed that small local suppliers benefitted from this law, while almost a quarter of small companies and almost 50% of large ones believed that there were no beneficiaries at all.
According to Krzysztof Goliński of Grant Thornton and Patryk Małolepszy of Calan & Associates, the SMEs are afraid to charge interest rates because it would mean losing customers. Therefore, the law is practically dead, they said. Interest rates are now charged only when the case is taken to court. The threat of interest payments is also used as a negotiating tool during the conciliatory procedure.
Another problem for creditors is that they pay VAT and income tax the moment they send an invoice. One attempt to change the law introduced the possibility to settle VAT after the money is actually paid - but only for very small companies with up to €800,000 annual turnover. But it is rarely employed since contractors avoid suppliers using this type of VAT solution.
Krzemiński points out that debt collection does not remove the source of the problem. A good contract is always the first step and will often decide whether there will be future difficulty in collecting payments.
According to Mariusz Wiszniowski's experience, it is not only the companies which are in financial difficulties that don't pay. He once heard: "I do not know why we did not pay yet. You do not pursue it, so we do not pay."
