When you sign a very important contract with your customer, are you really sure you can trust them?
We think each company operating on the Polish market has met an unreliable or insolvent customer. Remember, it is very much up to you. When using available options, you are able to mitigate the risk of concluding a transaction with unreliable customer.
I. CHECK AVAILABLE INFORMATION
They may give you more whole picture of the situation.
NCR (National Court Register) and BAR (Business Activity Records)
The best solution is to start with the National Court Register – it constitutes a nationwide database on entities participating in economic turnover and serves as a source of information. Here, we can find information on financial data which are the most important for the assessment of customer’s reliability.
All entrepreneurs, except for natural persons conducting business activity are registered in the NCR. Natural persons conducting business activity are registered in the Business Activity Records kept separately for each town or municipality.
What information can we get from the National Court Register and Business Activity Records?
- In Section I of the Register, we can find information on the amount of initial capital, and if it was contributed in kind, a relevant information about the fact. This Section also provides data of the shareholders, partners, stockholders etc.
- Section II provides the data on persons or bodies authorised to represent a given entity and the manner of such representation (e.g. data of the members of management board of a limited liability company with the information that two members of the management board acting jointly are authorised to make declarations of will on behalf of the entity). Data contained therein are insofar essential that a contract signed my persons acting on behalf of the customer while infringing the principles of representation will be invalid.
- Section III contains information on the subject of business activity or whether the entity filed financial statements.
- Section IV provides for the data on tax and social insurance arrears, if any. However, Social Insurance Institution or Tax Office do not pass information on arrears in every case. It refers only to receivables that have already been enforced. Moreover, Section IV contains the name of the creditor and its receivable, if the creditor has got an enforcement title issued against the entity and it has not been satisfied within 30 days following the date of receiving a corresponding order for payment. If enforcement proceedings have been conducted against the customer and was later dismissed because there were no sufficient funds to cover the mere enforcement costs, such information is always recorded in Section IV of the Register.
- Section V contains data on the appointment of the court administrator.
- Section VI contains, in particular data on the liquidation proceedings, on the initiation of recovery proceedings, on filing petition on bankruptcy with, providing for the manner in which such proceedings are or have been conducted or the arrangement procedure cancelled.
Here, we must mention the possibility to familiarise with the registration files of our customers. Files of entrepreneur recorded in the National Court Register are open and may be freely accessed. The records are made available free of charge. Nevertheless, a certain inconvenience may be the fact that the documents may be accessed only in the seat of a relevant registration court (in practice, these are District Courts, Commercial Divisions of the NCR, generally located in former province seats – seats of provinces (voivodeships) before the administration reform of 1998).
The files contain a set of useful data, including financial statements and reports on company’s activity for a given year, information on the company’s assets, scope of its activity, customers etc. Business Activity Records included information on business activity commencement by the entrepreneur, its type and locations of operation, as well as all changes made in this scope.
DEPENDING ON A LEGAL FORM
In case of business activity we can call local Business Activity Records (Town or Municipality Office). Here we can check the following information:
- if the entry is valid
- date of business activity commencement
- other locations of business activity
In case of commercial companies, checking information provided in business information services, such as, e.g. http://www.infoveriti.pl/ **or http://www.dnb.com.pl **
* we can check the date of business activity commencement
* shareholders, business relationships
* management board, manner of representation
* initial capital
* financial statements, if available
**access to current reports in business information services may be bought through an sms.
Internet is a treasury of information.
We enter the name of our future customer. We are interested in all information on the controlled company, i.e. actual place of business activity performance, branches, warehouses etc. First of all, it is worth to visit the customer’s web page and take note of the history and references – we can call its business partners and ask about the course of their previous cooperation. You can also find there financial reports and reports on activity. If the customer appears in any on-line record which is formally a debt stock-exchange, such information is usually visible in our search records, with the reference to a relevant stock-exchange. Such control can be performed completely free of charge. You can also read entries about the customer-to-be on internet fora.
The next step will be entering full names of president(s)/owner(s) of the company. The records will show information on the function performed in the enterprise, connections with other companies.
Before signing a contract with the new customer, check also on-line debt stock exchanges (write this term in the search engine). Checking is usually free of charge. It is also worth using services offered by Business Information Bureaus – BIG (commercial companies). Business Information Bureaus may list the debtors whose debts have not been enforced by the courts yet. However, one must remember that many debtors have not been recorded in BIG.
Business Information Bureaus may list the debtors whose debts have not been enforced by the courts yet. One must remember that many debtors have not been recorded in BIG. Another source of information is the Register of Insolvent Debtors, kept by the National Court Register, where the following are listed:
1) natural persons conducting business activity if their bankruptcy was announced or petition of bankruptcy was validly rejected since the debtor’s property was not sufficient to satisfy the mere costs of the bankruptcy procedure or the court or administrative proceedings pending against him were discontinued due to the fact that the enforcement will only let to recover enforcement costs;
2) partners of a company who are held liable with all their property for the company’s liabilities;
3) debtors who were obliged to disclose their property pursuant to Articles 913-920 of the Code of Civil Procedure – this category includes natural persons conducting business activity, natural persons who do not conduct business activity, commercial companies law;
4) persons who were temporarily deprived – in bankruptcy proceedings – of their right to conduct business activity on their own account and performing the role of an entrepreneur’s representatives or proxies, member of a supervisory board or an audit committee in a joint stock company, a limited liability company or cooperative;
5) natural persons who were recorded in the register on the request of their creditor who holds an enforcement title issued for such person, if the debtor has not paid the receivable described in the said title within 30 days since the date of such request.
Information from the Register of Insolvent Debtors are available in the branches of the Central Information Office of the National Court Register. Generally, these can be found at every district court holding a registration court. Information from the said Register are made available in two forms: certificates or extracts. Certificates can also be issued in two forms – stating that a given entity has been entered into the register or that an entity has not been entered into it. In turn, an extract from the Register of Insolvent Debtors can be complete or current. Depending on what we want to apply for, we should fill in a proper form.
COOPERATION WITHIN THE SECTOR:
Cooperation with other companies from the sector may prove a very effective form of getting information on unreliable payers. Concealment of information significant for the sector should not become a tool of competition. Companies exchange information on unreliable payers in many sectors of the economy. Data banks are thus established which are an efficient weapon in the fight against dishonest customers.
TELEPHONE TO THE BANKRUPTCY DIVISION:
We should also check the customer in the bankruptcy division of the court competent for the customer’s location. When we call the court, we ask whether bankruptcy of the entity we would like to start cooperation with was declared or whether any petitions for bankruptcy were filed.
CERTIFICATES OF NO ARREARS IN SOCIAL INSURANCE INSTITUTION OR TAX OFFICE
If our customer conduct business activity, we may also file an enquiry at the Tax Office which is obliged to issue, at our request, a certificate of arrears in tax payments of the taxpayer or certificate of no arrears in taxes relating to business activity. However, we will need a consent of our customer to get such certificate. Such a consent should be given by the customer in writing, providing for its signature and company seal. It will be easier to ask the customer to present such certificate before signing a contract.
If we want to check the reliability of our customer, we may consider using services of credit information agencies. Credit information agencies collect information form official sources. However, when using such services we should take into account certain expenses. When we have already made an initial inquiry about our customer, we may agree terms of cooperation. Nevertheless, we should remember to write all arrangements down.
II. REMEMBER TO COLLECT DOCUMENTS
You will avoid problems in case a claim is filed.
In order to avoid misunderstandings which could result from disloyalty or non-compliance with the obligations on part of any of the customers and the resulting necessity to initiate court proceedings, we should draw up a cooperation agreement, at least a framework one.
Such agreement allows to determine and specify the elements that are necessary for permanent cooperation between companies, such as, e.g. determine monthly quantities of goods to be delivered by a supplier and the price to be paid by the recipient for them. The agreement shall also provide for any discounts and maximum deadlines for the customer to accept the goods.
A cooperation agreement is freely formulated by both parties, however, if the activity is to be performed within the territory of the Republic of Poland, such agreement must be adjusted to the requirements stipulated in the Polish law, including the Civil Code.
Thus, remember to sign an agreement, since in this case we will have principles of cooperation clearly stated and we may quote them in case the counterparty does not comply with its terms.
Keeping proper documentation is extremely useful any time, in particular when our customer proves to be unreliable and does not comply with the agreed principles or we are forced to prove its guilt of non-compliance with the terms of cooperation in the court.
Order/Instruction: Order/Instruction contains similar guidelines as in the agreement, however it each time determines detailed terms of cooperation: date of issue, data of both parties, whether it refers to a one-off transaction or for a fixed period, an exact name of the service and its cost, it also contains information on delivery date of materials/goods, information on payments, i.e. if the payment is to be made before delivery or after it, with deferred payment or in cash, by a bank transfer, in instalments, wholly etc. An order must be signed and sealed by an ordering person. It is also worth to confirm the order for execution by signing and sealing the form by the other party.
W/Z (external dispatch form), protocol, CMR (way bill), voucher: Depending on the trade sector, there are various types of order confirmation.
W/Z – External Dispatch Form (release of materials outside the plan or warehouse or release of materials form the sold materials warehouse), when we send our product or goods to the customer.
Acceptance Protocol – construction industry – it may refer to construction works, performed elements, final acceptance protocol etc.
CMR – Way Bill – transport industry – it is a basic document, according to which transportation of goods is realised.
Voucher – in the fuel industry, i.e. a document confirming fuel collection.
Invoice: An invoice constitutes a final sale document.
It is a specific type of bill, containing detailed information on the transaction:
- data identifying the document: its number, date of issue
- parties to the sale and purchase transaction: seller and buyer
- specification of the subject of transaction: name of goods or services, quantity, price, value
- data for the settlement of binding taxes
- summary: in numbers and in words
- information on the agreed deadlines and forms of payment
- additional information: manner of collection, place of delivery and others
- signatures of the parties to the transaction
On the basis of these, payments are made. An invoice should be issued in two copies, at least, one of them being the original (for the buyer), and the other ones copies and all of them should be properly marked. Remember that from the perspective of accounting, a photocopy of the original invoice (with the inscription: ‘Original’ on it) is not treated a copy of the invoice.
Traditionally, an invoice should be issued in paper form, however, in certain circumstances it is permissible to have it in an electronic form (e-invoice). An electronic invoice constitutes an electronic document, which – pursuant to the Regulation of the Minister of Finance of 14 July 2005 on the issuance and sending electronic invoices – constitutes an equivalent to the traditionally issued invoice, i.e. in the paper form.
A trade credit is one of the most commonly used financial instruments on our market. It is difficult to find a company which would not buy or sell goods and services with a deferred payment deadline.
Companies selling goods or services with deferred payment deadlines are exposed to trade risk, which consists in: no payment made because of permanent insolvency (bankruptcy) of the counterparty, long-term delay on part of the customer in meeting its payment obligations, which may be an effect of temporary loss of liquidity or even its deliberate action – the counterparty credits itself at our cost.
Unfortunately, the occurrence of described situations is hard to predict, thus, before we start cooperation, we should get to know as much as possible about our customer.
We invite you to contact us.
Published on: 14 November 2016