Particularities to be considered with the issuance of the Fair Deadlines Law
On July 23, 2020, Law 2024 of 2020, known as "The Fair Terms Law", was enacted, which seeks to protect suppliers and contractors that may be subject to burdensome conditions in the payment and invoicing of their commercial operations. This law introduces some important obligations in current and future commercial relations, for which we will proceed to identify the most relevant ones.
The first thing to mention is that although the law applies to commercial operations, three cases are excluded from its scope of application, which are: (i) payments made in transactions subject to consumer protection rules; (ii) debts subject to bankruptcy or corporate restructuring proceedings; and, (iii) interest related to checks, promissory notes and bills of exchange, as well as payments arising from indemnities for damages or contracts where deferred terms are inherent to their essence, which entails that relationships falling under these assumptions will not be affected by the new conditions.
Mandatory deadlines for the payment of obligations
The most important novelty, and perhaps the most relevant interference with the principle of private will, is the imposition on merchants and other persons performing commercial transactions to pay their obligations within established terms, which may not be modified by agreement between the parties. In this respect, several mandatory rules were established, which are summarized below:
a. During the first year of effectiveness of the law, the maximum term to pay commercial obligations is 60 calendar days counted from the rendering of services or delivery of goods.
b. As of the second year, the term may not exceed 45 calendar days counted in the same manner.
c. With respect to mercantile obligations acquired within the framework of the General Health Security System, the maximum term is 60 calendar days; however, the term shall be in effect as from the third year after the law comes into force.
d. None of the above terms shall apply when the mercantile operations are carried out between Large Companies [1].
e. Additionally, in contracts governed by the general contracting statute of the public administration, the term for payment to MSMEs is a maximum of 60 calendar days following the acceptance of the invoice.
Modification to invoicing and payment policies and procedures
The second novelty to be considered is the obligation of contractors to modify their invoicing and payment policies and procedures, since they must be adjusted to the new terms and contain at least the provisions referred to in Article 4 of the law. In this regard, two provisions are highlighted that are of special importance because they may have:
The first provision to be considered is that the verification made of the goods or services contracted, as well as of the invoice and its supports, will not affect the term for payment. However, the law establishes that the term may be interrupted when, because of such verifications, the contracting party submits a request: (i) for correction or correction of the contractor's or supplier's obligations and/or (iii) for correction or correction of the invoice or supporting document. Regarding the latter, it is important to highlight that the three business days to reject or return the invoice were not modified with the enactment of the law, therefore, not rejecting or not returning the invoice within such term implies its tacit acceptance and, if the invoice is issued prior to the rendering of the service or delivery of the goods, it will also imply the beginning of the computation of the maximum term for payment.
The second provision to be considered is that, in accordance with numeral 5 of article 4 of the law, the erroneous or improper application of withholdings of any nature that implies a greater value withheld will be understood as a failure to comply with the payment term and will cause the Employer to be in default.
Collection costs arising from the contractor's default
The third novelty to be highlighted is the right of the supplier or contractor to collect through an executive process all costs incurred due to the contractor's default, and whose determination must be made under principles of transparency and proportionality.
As evidenced, Law No. 2024 of 2020 introduces important provisions that, initially, would lead to a liquidity benefit for suppliers and contractors. However, the impact will have to be measured by the National Government within three years from its issuance, so that only until then it will be possible to observe whether the State's interference in free enterprise and private will was justified.
[1] The criteria for classification with Large Enterprises can be observed in Decree No. 957 of 2019.
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