How does the new Fair Term Law apply?

On July 23, the so-called “Fair Term Law” was issued, Law 2024 of 2020, which seeks to favor small and medium-sized entrepreneurs, who, in the opinion of the legislator, were forced to accept long terms of payment by your customers. The law is relevant, since it will impact a significant proportion of the contracts that are signed, also having an imperative nature, so any stipulation that contradicts it will be ineffective in its own right.

What is the scope of application?

All payments made in consideration of commercial acts by people who have or not the quality of merchants, including the State.

What is excluded from the law?

1. Operations involving consumers.

2. The payment of interest incorporated in securities, compensation for damages, including those to be made by insurers, mutual contracts and other contracts where the deferred terms are typical of the essence of the contract.

3. Debts subject to business insolvency processes.

4. Operations between large companies. Recall that this classification was regulated in Decree 957 of 2019 and depends on both the sector and the income from annual ordinary activities of the company.

What obligations does the law impose?

The contractors must pay their contractual obligations within a non-extendable term established by law, as explained below:

1. During the first year of the law, between January 1, 2021 and January 1, 2022, the maximum term will be 60 days.

2. After the first year of the law, that is, from January 1, 2022, the maximum term will be 45 days.

3. For the commercial operations that are carried out within the framework of the General System of Social Security in Health, the maximum and definitive term will be 60 days, from the third year of validity, that is, on January 1, 2024.

4. For the obligations of the State governed by the general statute of contracting of the public administration, the term will be 60 days from the acceptance of the invoice, subject to availability of the Annualized Cash Plan (PAC).

These terms are given in calendar days and must be counted from the date of receipt of the goods or termination of the provision of services, except for number 4 above which is counted from the acceptance of the invoice.

What about billing systems?

The billing systems must be adjusted to comply with the provisions of the law, so that the processes of acceptance or review of goods or services, verification of invoices and supporting documents, and issuance by the contractor of documents necessary for billing are made within the payment terms established by law.

What is the penalty for non-compliance?

1. In addition to the penalties for late payment, when the payments are not made within the established deadlines, the contractor shall have the right to request compensation for the collection costs incurred, through executive collection, attaching the settlement of the compensation as executive title.

2. Acts aimed at avoiding the application of this law may be subject to legal actions and / or administrative sanctions, without exactly determining which ones.

3. Since the law is imperative, any stipulation to the contrary will be ineffective in its own right.

When does the law take effect?

The law is effective as of January 1, 2021.


Authors: María Alejandra De Los Ríos and Mónica Moreno

Click here to learn more about our Bogotá, Colombia member firm Lloreda Camacho & Co.