Bank account blocked. Here are ways to protect your business

What events can trigger an account blockade

— Most often, blocking a bank account is related to an unusual transaction. It varies depending on the type of business conducted, says Mateusz Jamróz. The expert explains, for example, that if on a daily basis the company's bank account receives amounts only from Polish contractors and the amount is several or several thousand, and suddenly the same account receives a much larger amount from a foreign entity registered in some exotic area, this may be detected by the bank's algorithm and a block may be imposed.

Currently – adds Mateusz Jamróz – it is increasingly possible to observe the blocking of transactions made with entities based in the Russian Federation or the Republic of Belarus, which is related to the imposed sanctions.

In such a case the bank may block the account for a period of up to 72 hours (STIR blockade). Subsequently, it may submit a notification to the General Inspector of Financial Information, who will block it again for a period of up to 96 hours. Later, the lockdowns can be extended for 3 months (STIR) or 6 months (GIIF). A report to the prosecutor's office is also possible.

What's the basic mistake companies make when it comes to bank accounts?

— In a situation where all the company's funds are collected on one bank account, the lack of access to them means that the company must actually declare bankruptcy, and additionally exposes itself to civil and tax liability, and in some extreme situations even to fiscal or criminal penalties from contractors, employees and tax authorities – warns Mateusz Jamróz.

The most common mistake, he explains, is a situation in which funds intended to pay all debts are collected on one bank account or in one bank.i.e. payments to contractors (e.g. for delivered goods), to the tax office, and to employees.

— A company that wants to prevent organizational paralysis must diversify its bank accounts. This is definitely the simplest and at the same time the most effective method, suggests Mateusz Jamróz.

The expert explains that the company should have several bank accounts, preferably in different banks, i.e. a separate current account, an account for employee remuneration, an account for the payment of public liabilities (taxes, ZUS) and a separate account for reserves.

Why diversifying your bank accounts is so important and what else you can do

— It is rare for an authority to block all bank accounts of a given company – emphasizes Mateusz Jamróz.

The expert points out that Apart from diversifying accounts, you can also choose solutions such as opening deposits, especially overnight deposits, purchasing bonds or opening an escrow account. (where funds are deposited to secure the transaction).

— At the same time, depending on the organization of a given company, various types of corporate solutions are possible, such as: a loan from a partner, shareholders' subsidies (if the company's deed provides for them), or an increase in the share capital, and if the company operates within a capital group – transferring liabilities within this group. Entrepreneurs affected by bank account blocking can also save themselves factoring, loan from a contractor, sale of assets or leaseback. However, these solutions very often also require an active bank account, and at the same time they do not provide immediate liquidity, as is the case with the diversification of bank accounts – explains Mateusz Jamróz.

Should the company keep part of its working capital, e.g. in cash?

– Keeping part of the working capital in cash may be a good solution, but especially for smaller entities operating locally – admits Mr. Jamróz. The advantage of cash is that it can be used immediately and is not dependent on the banking system.

— Reserves kept in cash may help the company survive the first few dozen hours, but in the long run, the use of cash may not work, especially in the case of larger entities operating globally – argues a lawyer at the Kopeć Zaborowski Law Firm. For example, he explains, cash may work well for a local transport company because if its bank account is blocked, the company can still buy fuel, goods, as well as make basic payments and organizational purchases.

In which industries cash will not work as a security against blockage

— However, there are sectors where this solution may not work. For example, in the IT or e-commerce industries, cash transactions are practically non-existent. Additionally, most companies operate internationally and transactions are made almost all the time – in such a case, switching to cash settlements, if it works at all, will certainly slow down the entire business, says Mateusz Jamróz.

Additionally, cash means additional formal and organizational problems. The expert mentions:

— risk of theft,

— difficulties in accounting and tax settlements,

— the limit for cash transactions between entrepreneurs is PLN 15,000. PLN gross, which in many sectors, e.g. industry, means that cash turnover is practically non-existent. — Labor law provisions also provide that the default form of remuneration payment is payment to the employee's designated payment account, cash payment generates the need for the employee to submit an application, which may also arouse reluctance on the part of employees, and in the case of a large number of employees, generate further organizational problems – says attorney Jamróz.

How much cash can/should a company hold?

— There are no clear regulations that would indicate how much cash a company can or should hold, says our interlocutor and advises that the company should define two indicators when creating cash collateral. First, it should determine its monthly costs, and second, it should determine how long its cash reserves should cover. – However, the cash reserve will rarely cover the costs for a period of three months or more – argues Mateusz Jamróz.

Additionally, says the expert, in the event of any inspection, cash may raise questions from the tax authorities. — A better solution is to allocate only a certain percentage to a cash reserve, e.g. 20-30 percent, and place the rest of the funds on reserve bank accounts, possibly in easily accessible financial instruments or use a credit line – advises Mr. Jamróz.

Additionally, it is worth noting that in the case of the so-called STIR blockade, i.e. applied by the Head of the National Tax Administration, the entrepreneur may submit an application for payment of funds for employee remuneration, payment of alimony or pension, tax or customs liabilities, and in particularly justified cases – release of funds from a blocked bank account.

What can a company do before an account block occurs?

Any company that wants to defend itself against account blocking, it should also introduce procedures for verifying contractors and properly document all transactions. — This includes, for example, checking the contractor on the VAT white list, verifying public registers such as the National Court Register or CEIDG, and verifying whether the contractor is not on the sanctions list. These are relatively simple methods that, firstly, minimize the use of blocking a bank account, which is often the result of entering a suspicious chain of transactions, and secondly, in the event of an account blockage, with appropriate procedures and properly documented transactions, we are able to quickly launch an effective defense and point to key arguments – argues Mr. Jamróz. Having each transaction thoroughly documented, we are able to have the block applied by the bank lifted and not to submit the notification to the GIFI and then to the prosecutor. Similarly, having introduced appropriate procedures and documented transactions already at the stage of the case before the prosecutor, the Head of the National Tax Administration or the Court, we are able to undertake an effective defense from the very beginning, without wasting time on collecting materials favorable to us.

Author: Łukasz Zalewski, journalist of the Law section, Business Insider Polska