– Tax regulations launched under the “Polish order” affect nearly 99% of contracts and works performed for local governments.
– The debts of local governments are growing, they will run out of up to PLN 30 billion to cover current expenses, so they are keeping cash with them as long as possible.
– In simple terms, it looks like the contractor most often gets 10% of the contract value at the beginning of the order, and only after the contract is finished does he invoice 90% of the value.
– However, if the order is stretched over time often even large companies with experience my problem to bear the cost of financing the investment, paying subcontractors.
The Polish Order has challenged accountants and entrepreneurs, and its not always clear assumptions have caused gigantic doubts and difficulties in tax settlements. The program introduced many unitary solutions, while others depend on administrative decisions and interpretations. Evident flaws have been systematically corrected, mitigating its consequences. However, there are industries that continue to feel the pressure, the revised tax regulations. These include construction companies, but also, for example, those involved in greenery maintenance or the care of urban infrastructure. Especially those working on behalf of local government units.
Local governments hold cash by the orders:
According to the National Chamber of Commerce, local governments will lack 20 to 30 billion zlotys to cover current expenses. Another several billion extra, which they did not provide for in their budgets, will have to pay for higher loan installments. Some cities are paying off existing loans with bonds. The growing debts of local government units make them look for opportunities to formally reduce their liabilities. They are also reluctant to part with cash, and in any case are trying to keep it with them as long as possible.
“In the case of construction companies, it can be said that the “Polish order” regulations affect 99% of contracts, orders and work performed for local governments. In practice, this is a negative impact, because it de facto requires the contractor of works to credit these works. In simple terms, it looks like the contractor usually gets about 10% of the contract value at the beginning of the assignment and only invoices 90% of the value when the work is finished. However, if the order is stretched out over time, this spells trouble for the contractor. After all, the entrepreneur has to pay liabilities to the Tax Office, Social Security or pay the employees who carry out the order on an ongoing basis,” says Mateusz Skowronek of eFaktor, a factoring company for SMEs.
According to data from faktura.pl, the average waiting time for payment of an invoice in the construction industry is 21 days, but in the case of local government orders, there is a longer wait for the last installment, because it is tied to the completion date of the order. Even large companies can find it difficult to bear the cost of financing an investment for an extended period of time. The trouble is even greater when the contract requires hiring subcontractors, who also have to be paid on an ongoing basis.
Construction industry looks for opportunities to speed up money circulation:
The uncertain economic situation, the turn of the year, the withdrawal of the VAT cut (for fuels, among other things) and, above all, high inflation mean that companies cannot wait too long for money and credit to their partners. Therefore, they are looking for financial solutions that can help them plug the hole and speed up the circulation of money.
“If an entrepreneur has a contract with a local government unit, there is a good chance of a successful application for bridge financing. Such a commissioner of works is treated as a reliable payer, so the invoice will most likely be paid. The local government is not at risk of bankruptcy – in any case, this does not happen often. This allows us to finance such an entrepreneur in the “under contract” formula. Even if it is, for example, a construction company, i.e. from an industry that banks treat as risky. With us it is different, because the collateral for factoring financing is a contract with a local government. Once we receive an assignment from the municipality, we can systematically release funds to the applicant for the next stages of the investment, as the work progresses,” explains Mateusz Skowronek of eFaktor.
The expert estimates that in recent weeks there has been greater and growing interest in financing under such a model. Its popularity is growing, because here we can talk about a win-win situation: the entrepreneur receives the funds faster, and the local government unit is calm about the work being performed, while not paying out the entire value of the contract.
