The regulation of payment terms applicable to business to business (B2B) relationships is of increasing important for many enterprises.
Over recent years there has been a tendency for many businesses to try to extend the terms on which they pay suppliers. Sometimes periods can extend up to 180 days. For many large enterprises the resulting preservation of cash has proved extremely important. On the other hand, smaller businesses often claim that such payment terms derive from an imbalance of power and are potentially very damaging to their interests.With this in mind, many national governments have introduced restrictions on maximum payment terms and imposed certain other restrictions. Some even go so far as to require larger companies to report on their payment terms policies.
Read about specific legal requirements in respect of payment terms in Russia explained by Georgy Daneliya, Maxim Gubanov and Alexey Shadrin.
1. Are there any specific legal requirements in respect of payment terms?
Russian law does not establish any general legal requirement with respect to payment terms. Parties to a civil law contract may set forth payment terms suitable to them. In the absence of payment terms specified by the parties in the contract, the payment shall be made within seven days upon the creditor’s request, unless otherwise envisaged by the provisions of the Russian Civil Code regulating the relevant type of contract.
Thus, pursuant to Article 486(1) of the Russian Civil Code, payment for goods purchased under a sale-purchase contract must be performed immediately before or after the transfer of goods to the buyer. The term ‘immediately’ in practice is often interpreted as meaning‘reasonable’.
In case a customer fails to pay for purchased goods, performed works or rendered services within the term stipulated in the contract, and in the absence of specified contractual penalties, a statutory penalty equal to the key rate set by the Russian Central Bank (currently 5.5% per annum) would apply. In addition, a seller or contractor will be eligible to claim damages exceeding the above statutory penalty.
2. Is there a standard payment term set out in law? If so, what is it?
As noted above, Russian law does not specify any general legal requirement with regard to payment terms. Parties to a contract are free to establish payment terms as they deem appropriate.
3. What are the circumstances in which parties may contractually agree to extend payment beyond the standard payment term?
This is not applicable as there is no standard payment term (please see above).
4. May an obligation beyond the standard payment term be evidenced in a PO?
This is also not applicable as there is no standard payment term (see above).
5. Are there any penalties for breach of payment term legislation other that a civil claim of the seller?
Russian FOREX legislation sets forth strict requirements for Russian parties obliging them to procure (or at least to take all reasonable efforts to procure) the repatriation of funds paid abroad to foreign entities or persons, which failed to deliver goods, services or works against such payments. The Russian Administrative Code and FOREX legislation set forth severe penalties for the failure by Russian parties to observe the foregoing requirement. The amount of a fine typically ranges from 75% to 100% of the amount paid abroad.
6. Is there any special legislation regarding payment obligations for the COVID-19 situation?
There is no special legislation in Russia regarding payment obligations during the current COVID-19 situation.
7. Any additional comments
The parties to a contract may agree that the key rate set by the Russian Central Bank may apply to the purchase price of goods sold on terms of commercial credit. This does not qualify as a penalty, since no breach-of-payment terms takes place.
Furthermore, unpaid but delivered goods are considered pledged to the seller by operation of law unless the payment is made, and unless the parties agreed otherwise in the contract.
By Georgy Daneliya, Counsel, Maxim Gubanov, Senior Associate, and Alexey Shadrin, Associate, CMS