Which payment risk should be assessed first?
The payment structure should reflect the delivery model. A supplier manufacturing bespoke goods has a different exposure from a marketing agency billing monthly or a software vendor delivering a nine-month implementation.
Before selecting security, calculate the maximum unpaid exposure. It includes subcontractor fees, materials, licences, payroll and reserved capacity, not merely lost margin. If three stages may be delivered before the first invoice becomes due, the supplier is effectively financing much more than the payment term suggests.
The counterparty should also be checked: current Polish register data, representation, available financial statements, disclosed arrears, trading history and group structure. A familiar group brand does not mean that the parent company is liable. The debtor is the entity named in the agreement unless separate security has been obtained.
Advance payment or Polish-law deposit?
An advance payment is part of the future price paid before full performance. It finances start-up costs and reduces the supplier’s exposure. If the contract is not completed, its treatment depends on the reason, the work already performed and the termination provisions. Simply labelling the amount a “non-refundable advance” may not be enough to retain it in full without a contractual basis for the settlement.
A Polish-law deposit, or zadatek, has statutory default consequences. Unless the parties agree otherwise, a party may withdraw from the contract without an additional cure period if the other party is responsible for non-performance and retain the deposit; a party that paid the deposit may claim twice the amount. On performance, it is credited against the price. If the contract is terminated by agreement, or non-performance is attributable to neither party or both parties, the deposit is returned without doubling.
Zadatek is not automatically the best device for a long service project. The contract should identify the obligation secured, keep the amount proportionate and coordinate it with termination, withdrawal and payment for work already carried out.
How should milestone payments be structured?
A milestone reduces exposure only if it can be measured and invoiced. The agreement should define the deliverable, submission date, acceptance criteria, review period, correction process and consequences of silence. A vague requirement for “acceptance without reservations” may allow minor comments to block the whole invoice.
The payment mechanism should be coordinated with the broader points in the B2B contract checklist. A payment date cannot cure an uncertain scope, acceptance process or authority to sign.
How the issue appears in practice
Hypothetical example: an IT supplier finances most of the customer’s project
Hypothetical example: an IT supplier finances most of the customer’s project A Polish software company agrees to implement a system for PLN 360,000 net over six months. The contract permits one invoice only after “defect-free acceptance of the entire system”, and the customer may raise comments without a deadline. The supplier commits employees and a subcontractor and incurs approximately PLN 250,000 before it can invoice. Near completion, the customer raises minor comments and delays acceptance for two months. A safer structure could include an advance covering start-up costs, four measurable milestones with separate payments, a review deadline and acceptance despite non-blocking defects, a right to suspend later work after payment default, and 10% payable after a final stabilisation period. If the customer presents elevated credit risk, the final tranches could also be backed by a parent-company or bank guarantee. The structure does not eliminate disputes, but it limits the amount that must be recovered after one arises.
Should part of the price be retained after completion?
Retention may protect the customer during a defects or stabilisation period. For the supplier, however, it means financing the project after acceptance. The agreement should set a maximum percentage, a clear release date or event, rules for partial release and a closed list of grounds for continued withholding.
Full payment against a performance guarantee may be an alternative. This improves supplier cash flow but creates a guarantee cost and requires the secured claims to be defined. A high retention, broad guarantee and uncapped contractual penalties should not be stacked without checking whether the overall package allocates risk disproportionately.
When is an additional source of recovery needed?
Where the contracting party is a special-purpose vehicle, a new entity or a company with limited assets, the payment covenant itself may have little economic value. The parties may consider suretyship by a shareholder or group company, a bank or insurance guarantee, a letter of credit or escrow.
A surety undertakes liability for another person’s debt on the terms set out in the suretyship. The document should identify the secured debt, cap, liability period and effect of amendments to the principal agreement. The actual solvency and proper representation of the surety must also be checked.
A bank guarantee is a separate undertaking by the bank to pay when the documentary call conditions are satisfied. Its practical value depends on those conditions. A long list of required documents or a final judgment requirement may remove the speed that the guarantee was intended to provide.
Escrow protects the availability of funds by placing them with an agreed third party for release after defined conditions are satisfied. The agreement must address objective release events, disputes, fees and the long-stop outcome if the condition is not met.
Are late-payment interest and contractual penalties enough?
For commercial transactions, Polish law provides statutory late-payment interest and fixed compensation for recovery costs. It also restricts very long payment periods in specified relationships. The contract should comply with those rules and clearly identify when payment becomes due.
Interest increases the claim but does not create funds to satisfy it. A contractual penalty is also not the appropriate device to secure the payment of money itself under Polish law. Penalties may secure non-monetary duties such as document delivery, confidentiality or a non-compete. Their structure is discussed separately in Contractual penalties in Polish B2B agreements.
Legal basis
- Act of 23 April 1964 — Polish Civil Code, in particular Articles 353¹, 394, 450, 488–490 and 876–887
- Act of 29 August 1997 — Polish Banking Law, in particular Article 81
- Act of 8 March 2013 on counteracting excessive delays in commercial transactions
This article provides general information and does not constitute legal advice for a specific matter. The appropriate solution depends on the facts, documents and business objective.
Summary
Payment security should reduce the amount financed by the supplier and provide an operational response before arrears cover most of the contract. The appropriate mechanism depends on the delivery model, exposure, counterparty condition and cost of the security. ---