Fair Payment Terms Act Regulation | Denton

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On December 22, the Colombian government issued Decree 1733 of 2020 which regulates Law 2024 of 2020, known as the “Fair Payments Law”.

The Fair Payments Act established that all monetary payments incurred in consideration for commercial transactions must be made within the time limits established by law. This is mandatory law, so any contractual provision to the contrary will be invalid.

The decree mainly clarifies the following points:

Exclusions from the scope of the law: The following types of payment are excluded from the scope of the law:

  1. Payments made in return for acts that, in accordance with Articles 20 to 23 of the Colombian Commercial Code, are not considered commercial operations. Thus, the acquisition of goods for domestic consumption and their sale, the acquisition of goods to produce artistic works and the sale of these by their author, the provision of services inherent in the liberal professions, and the sale made directly by farmers or breeders of their crops, in their natural state, would not be covered by this rule.
  1. Payments on consumer relationships subject to consumer protection regulations. That is, payments resulting from transactions between a producer or supplier who provides a good or renders a service and a consumer who acquires it and uses it as the final recipient to satisfy his own, private, family needs. or domestic, or even a business need as long as it is not intrinsically linked to the economic activity of the business.
  1. Obligations arising from commercial transactions between large enterprises. In other words, the law applies to transactions where at least one of the parties is a micro, small or medium-sized enterprise, based on its income from annual ordinary activities, under the terms of Executive Order 1074 of 2015:
  • For the manufacturing sector:
    • Microenterprise: less than or equal to 23,563 UVT (COP$ 855,525,404).
    • Small business: greater than 23,563 UVT (855,525,404 COP$) and less than or equal to 204,995 UVT (7,442,958,460 COP$).
    • Medium Enterprise: Greater than 204,995 UVT (7,442,958,460 COP$) and less than or equal to 1,736,565 UVT (63,051,202,020 COP$).
  • For the service sector:
    • Microenterprise: less than or equal to 32,988 UVT (1,197,728,304 COP$).
    • Small business: greater than 32,988 UVT (1,197,728,304 COP$) and less than or equal to 131,951 UVT (4,790,876,908 COP$).
    • Medium-sized company: greater than 131,951 UVT (4,790,876,908 COP$) and less than or equal to 483,034 UVT (17,537,998,472 COP$).
  • For the commercial sector:
    • Microenterprise: Less than or equal to 44,769 UVT (COP$ 1,625,472,852).
    • Small business: greater than 44,769 UVT (1,625,472,852 COP$) and less than or equal to 431,196 UVT (15,655,864,368 COP$).
    • Average company. Greater than 431,196 UVT (COP$ 15,655,864,368) and less than or equal to 2,160,692 UVT (COP$ 78,450,405,136).

*Large companies are those whose annual revenue from ordinary activities exceeds the above ranges.

The accreditation of the size of the company must be done by a certificate issued by the natural person in the case of these, or in the case of entities, by a certificate issued by the legal representative, the accountant or the tax controller if the company is obliged to have one.

  1. Obligations contained in securities (excluding sales invoices).
  1. Compensation payments for damages.
  1. Payments arising from the performance of insurance contracts.
  1. Obligations arising from credit agreements and other typical or atypical contracts where deferred payment periods are essential to the type of contract. The decree specifies that the obligations resulting from this type of typical or atypical contracts are excluded from the scope, provided that the parties have agreed.
  1. Obligations subject to bankruptcy, restructuring or company liquidation procedures, including obligations subject to the insolvency regimes of non-commercial natural persons and the taking possession and liquidation of the Financial System Organic Status.
  1. International trade transactions. It should be noted that this exception is entirely introduced by this decree.

When to start counting the payment term: In order to specify the moment from which the terms of the fair term are deducted, and to align them with the provisions relating to electronic invoicing, the decree specifies that:

  • When the buyer of the good or service receives the sales invoice electronically, the obligations must be paid within the following time limits:
    • 60 calendar days from the receipt of the invoice meeting the requirements established in the tax law, for invoices received between January 1st and December 31st2021.
    • 45 calendar days from receipt of the invoice meeting the requirements established in the tax law, for invoices received after January 1st2022.
  • When the invoice is not received by the buyer electronically, or when the seller is not obliged to issue a sales invoice in accordance with the regulations in force, the period of equitable payment will begin with the delivery of the goods or the end of the provision of the service.
  • Concerning the commercial operations carried out within the framework of the General Social Security Health Regime, the maximum and final period for payment of the obligations will be sixty (60) calendar days from receipt of the invoice. The obligation to pay fairly will apply to these payments from 1 Januaryst2023.

Finally, the decree establishes that the Ministry of Commerce, Industry and Tourism will grant recognition to companies that make their payments in shorter periods than those established by law, being the responsibility of the Ministry to establish the conditions, the deadlines and the recognition that will be given to the participants who occupy the first places.

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