How does the new Fair Payment Periods Law apply?
On July 23rd, the called “Fair Payment Periods Law” was issued, Law 2024 of 2020, a law which seeks to favor small and medium businesses, who in the opinion of the legislator, were compelled to accept extended payment periods from its clients. This law is relevant, since it will impact a significant amount of the contracts that are executed, being a mandatory provision, and therefore any clause in an agreement contradicting this law shall be ineffective.
What is the scope of application?
All payments made due to the execution of commercial acts carried out by parties who may or may not have the status of merchants, including the State.
What is excluded from the law?
1. Operations involving consumers.
2. The payment of interest incorporated in securities, compensation for damages, including those to be made by insurance companies, loan contracts and other contracts where the deferred terms are inherent to the essence of the contract.
3. Debts subject to corporate insolvency processes.
4. Operations between large companies. Remember that this classification was regulated by Decree 957 of 2019 and depends on both the sector and the company’s annual income from ordinary activities.
Which are the obligations established by the law?
Contractors shall pay their contractual obligations within a non-renewable period of time established by law, as explained below:
1. During the first year that the law is in effect, between January 1, 2021 and January 1, 2022 the maximum term will be 60 days.
2. After the first year of the law, that is, from January 1, 2022, the maximum period will be 45 days.
3. For commercial operations carried out within the framework of the General Health Care System the maximum and definitive term will be 60 days, starting from the third year of validity, that is, January 1, 2024.
4. For State obligations governed by the general statute for public procurement, the term shall be 60 days upon invoice’s acceptance, subject to availability of the Annual Cash Flow Plan (PAC).
These periods are given in calendar days and shall be counted from the date of receipt of the goods or termination of the provision of the services, except for numeral 4 above which starts upon the invoice’s acceptance.
What happens with billing systems?
The billing systems must be adjusted to comply with the provisions of the law, so that the processes of acceptance or review of goods or services, verification of invoices and supporting documents, and issuance by the contractor of documents necessary for billing are made within the payment deadlines established by this law.
What is the penalty for breaching the duties established in the law?
1. In addition to penalties for late payment, when payments are not made on time, the contractor shall have the right to seek compensation for collection costs incurred, through the enforcement procedure, with the settlement of the compensation attached as an enforceable title.
2. Acts intended to avoid the application of this law may be subject to legal action and/or administrative sanctions, without determining exactly which ones.
3. Since the law is mandatory, any provision to the contrary will be ineffective.
When is the law’s effective date?
The law’s effective date is January 1, 2021.
In case you have any queries, we look forward to help you.