Assessing the Counterparty’s Ability to Pay

In our previous article on assessing creditworthiness, we outlined one method for checking the financial standing or potential indebtedness of prospective business partners by using economic information bureaus (BIG).

In this article, we focus on other publicly available tools that businesses can use to assess the financial risk associated with potential clients. Access to these tools is free of charge and the findings can protect you from losing money, joint and several tax liability, or cooperation with a shell company.

1. Repository of Financial Documents – verification of financial statements

The Repository of Financial Documents (Repozytorium Dokumentów Finansowych, RDF) is a sub-service of e-KRS, where companies submit their annual reports (a balance sheet, profit and loss account and cash flow statement) along with resolutions on profit distribution. These are easily downloadable in PDF format with just the KRS number. Anyone can check a company in this register by going to the KRS financial documents browser: ekrs.ms.gov.pl and clicking on “Free search and download of financial documents” then entering the KRS number of the contractor. This will give access to the latest financial statements and accompanying resolutions. If the company does not submit such documents, this is the first sign that the contractor may be unreliable. It is good practice to download the last three years of reports and enter the data into a simple spreadsheet. This will allow you to see trends (e.g. growing liabilities or falling margins) rather than just a one-time “snapshot.” It is also worth taking a look at the auditor’s opinion, as reservations can be a valuable source of information.

The financial statements can primarily be used to verify the net profit/loss (whether profits are stable or plummeting), equity (the company’s resources), short-term liabilities and cash flow from operating activities.

2. MSiG + KRZ – public announcements about the company’s operations

Court and Business Gazette – urgent announcements

Among various other things, the Court and Business Gazette (Monitor Sądowy i Gospodarczy, MSiG) publishes announcements about the opening of restructuring proceedings, mergers, liquidations and the appointment of a court-appointed administrator. Importantly, this information may appear here several days before the formal entry in the National Court Register. In such situations, every day can be crucial for recovering money.

National Debt Register – official ranking of debtors

Since the end of 2021, all bankruptcy and restructuring proceedings as well as bans on performing business activity are reported to the National Debt Register (Krajowy Rejestr Zadłużonych, KRZ). The krz.ms.gov.pl portal allows anyone to view a list of cases against a company, a member of the management board, or even a proxy without even logging in. Simply open the “Proceedings search engine” tab and enter the company’s KRS number. After creating an account on the portal, a contractor can be added to the “watch list.” This is a valuable tool that sends you an email notification in the event that new proceedings are initiated.

3. List of VAT payers + VIES – two minutes that can save you tax costs

Polish list of VAT payers – the White List

The White List maintained by the National Revenue Administration (Krajowa Administracja Skarbowa, KAS) contains: taxpayer status (active/exempt/deleted), dates of changes and company account numbers. Why is this important? Because a payment of over PLN 15,000 to an account outside the White List exposes you to the risk of being jointly and severally liable with your business counterparty for VAT. Furthermore, if the contractor was deregistered on the invoice date, the tax office may challenge your right to deduct tax.

Verification is very simple, as all you need to do is enter the contractor’s tax identification number (NIP). After verification, it is worth downloading an official confirmation of reading, or a PDF with the whitelist details as at the date of payment, and keep it on file. In the event of a tax inspection, this is the simplest way to demonstrate proof that you have acted with due diligence in verifying your counterparty.

EU VAT payers list  – when a contractor buys or sells in the EU

If your business counterparty is based in another EU Member State, check their details in VIES (VAT Information Exchange System), a search engine run by the European Commission. The VIES database confirms whether a given EU VAT number is active in the system. This is very important if you conduct transactions with entities from EU Member States because, if the contractor declares “reverse charge” or “0% VAT” on intra-EU supplies, the lack of “valid” status in VIES may be a warning sign to issue a gross invoice.

4. Central Register of Beneficial Owners

The Polish Central Register of Beneficial Owner (Centralny Rejestr Beneficjentów Rzeczywistych, CRBR) is a public register of individuals who have direct or indirect control over companies (“beneficial owners”). Available at crbr.podatki.gov.pl.

This tool allows you to check whether the contractor is the same person you have been conducting negotiations with (countering the risk of “front companies”). It also makes it easier to assess links, e.g. in a situation where the same beneficiary controls both a supplier and a competitor. In certain specific situations described in the Polish AML Act, some entities are even required to verify their contractors in this system.

Summary

Today’s businesses can take advantage of various publicly available tools to carry out the basic verification of contractors. These include RDF, MSiG with KRZ, the VAT White List with VIES and CRBR. Each of these shows the company from a slightly different perspective: financial statements reveal its actual financial standing, court announcements reveal current problems or organisational changes, VAT registers confirm the correctness of tax settlements, and the list of beneficiaries reveals the people actually benefiting from a given activity. They share several common features: they are free, available online at any time, and allow you to build a reliable “risk profile” of your business partner in just a few minutes.