Evolution of Payment Discipline
The payment discipline of companies has changed significantly over the years. While it was once common for obligations to be settled on time, and businesses could rely on mutual trust, recent years have seen a growing issue of extended invoice due dates and an increase in overdue receivables. Economic uncertainty, legislative changes, and strained cash flow are forcing many companies to actively address debt collection.
International Comparison of Payment Discipline
According to a study by Dun & Bradstreet from July 2024, Czech companies fulfill their obligations to suppliers better than most other evaluated European countries. In 2023, 59.2% of invoices in the Czech Republic were paid on time, placing the country in the top third among Northern and Southern European markets. By comparison, 94.2% of invoices in Denmark, 82.7% in Poland, and 79.1% in Russia were settled on time. On the other hand, the worst payment discipline was recorded in Romania, Portugal, and Bulgaria, where less than one-fifth of receivables were paid on time. (dnb.com)
Preventing Overdue Receivables
The best approach to overdue receivables is prevention. This means carefully evaluating business partners, especially new ones, by checking their solvency in commercial and insolvency registers or using credit reports. Clearly defining payment terms in contracts, including penalties for delays, is crucial. For new or less reliable clients, requiring advance payments can minimize risk. Automating invoicing and payment reminders with systems that regularly notify clients about upcoming due dates can also significantly reduce late payments. However, no method guarantees 100% certainty, so it is essential to be prepared for different debt collection strategies.
Out-of-Court Settlements
I always prefer out-of-court settlements, starting with friendly reminders or phone calls. If these do not yield results, the next step is a formal written demand with a clear payment deadline and a warning about possible legal action or cooperation with a collection agency or legal representative.
Legal Debt Collection
If out-of-court methods fail, legal proceedings may be necessary. This can result in a payment order and subsequent enforcement against the debtor’s assets or bank accounts. In extreme cases, insolvency proceedings may be initiated.
New Legislation from 2025
From 2025, a significant legislative change in VAT regulations directly affects debtors and their overdue obligations. If they fail to pay their debts that are six months or more overdue, they will be required to remit the VAT they originally claimed. For creditors, informing debtors of this obligation can serve as an additional form of out-of-court pressure that may lead to payment.
Liability Risk for Unreliable VAT Payers
Businesses should also be aware that their own obligations could put them in the position of a debtor or a guarantor for their supplier. If a supplier is classified as an unreliable VAT payer, the buyer assumes responsibility for unpaid VAT. The unreliable VAT payer status applies to entities that severely violate tax obligations, such as failing to remit VAT or repeatedly committing tax offenses. The risk of VAT liability arises when a buyer fully pays an invoice to a supplier who is listed as an unreliable VAT payer at that time, and the supplier subsequently fails to pay the VAT. In such cases, the tax authorities may demand VAT payment from the buyer, leading to unexpected financial losses. To mitigate this risk, it is advisable to regularly check suppliers in the register of unreliable VAT payers on the tax authority’s website.
How to Ensure Effective Receivables Management
Proper receivables management is crucial for maintaining healthy cash flow and business stability. Intras Consulting offers an analysis of your situation and the implementation of an effective receivables management system to minimize the risk of unpaid invoices and ensure efficient collection processes. Contact us for a consultation and tailored recommendations.