At the end of November 2012, the Parliament approved a new Act on the Payment Terms of Commercial Agreements (laki kaupallisten sopimusten maksuehdoista) that will enact the Late Payment Directive issued on 16 February 2011 (2011/7/EU) on a national level.  The new Act applies to payments made in return for goods or services in situations where the supplier of the said goods or services is an entrepreneur or a contracting authority.

The Parliament simultaneously also approved proposed amendments to other legislation, such as to the Finnish Act on the Collection of Debts and to the Finnish Interest Act. 

The Act on the Payment Terms of Commercial Agreements

The provision concerning the maximum duration of the payment term is the key amendment resulting from the enactment of the Act on the Payment Terms of Commercial Agreements. According to the provision, the payment term in transactions concluded between entrepreneurs may at maximum be thirty (30) days when the debtor is a contracting authority. The payment term may, however, be sixty (60) days at maximum if the parties specifically agree upon it and if it is justified due to the special nature of the agreement or a special characteristic thereof.

In the event that the debtor is an entrepreneur, the payment term may exceed sixty (60) days only if the parties specifically agree upon it.

The provisions of the new Act are binding to protect the creditor. Parties may, however, agree e.g. upon a shorter payment term if they so wish. 

The Finnish Act on the Collection of Debts

According to the government proposal, the amendments seek to revise the Finnish Act on the Collection of Debts so that its provisions ensure even better adherence to good debt collection practices and prevent the collection of unreasonably high collection costs from the debtor. 

Standard compensation

A new provision stating that the creditor shall be entitled to a standard compensation of EUR 40 for its collection costs in the event that the debtor is late in making their payment shall be incorporated into the Finnish Act on the Collection of Debts. The purpose of the aforementioned standard compensation is to encourage debtors to make their payments on the due date at the latest.

The provision applies to payments that the entrepreneur or the contracting authority must pay to an entrepreneur in exchange for goods or services. The debtor's late payment directly establishes the creditor's right to the standard compensation. It thereby does not hinge upon the creditor sending the debtor a payment reminder or undertaking any other actions to collect their debt. The standard compensation does not apply to consumer debts.

The aforementioned provision is binding to protect the debtor. The parties may not decide e.g. that they will levy a standard compensation that exceeds EUR 40. The mandatory nature of the provision does not, however, prevent parties from incorporating into their agreements a provision on a penalty for late payment or other compensation payable pursuant to a late payment that is independent of the obligation to compensate the creditor for the costs they incur for debt collection. 

Consumer debts

The Act incorporates several new provisions on the collection of consumer debts. According to the new Act, debtors shall be entitled to request the discontinuation of the collection of a consumer debt and request the transfer of the matter to a court of law. The creditor may institute collection proceedings in a court of law following the debtor's request for discontinuation or directly apply for the distraint of distrainable debts.

The right to issue a request for discontinuation is included in the Act in order to ensure that collection costs payable by the debtor are no longer gratuitously accrued by forcing the debtor to undergo the multi-phased collection process time and time again.

The Act also includes a provision on the allocation of funds accumulated through the collection of consumer debts. Pursuant to the said provision, funds accumulated through the collection of consumer debts may be allocated to the collection costs and their interest only after the debt and its interest are fully repaid.

The Act also revises the maximum amounts of collection costs charged for the collection of consumer debts in addition to further specifying the scope of good collection practices.

The following revisions made to the maximum amounts of collection costs applicable to consumer debts deserve mention:  the maximum amount of costs payable by the debtor may be EUR 60 (if the capital of the debt does not exceed EUR 100); EUR 120 (if the debt exceeds EUR 100 but not EUR 1000); and EUR 210 (if the debt exceeds EUR 1000). The provision does allow for some flexibility as the maximum amounts set out therein may be exceeded in cases where the collection process is especially arduous. The creditor may charge a maximum of EUR 5 for a payment reminder issued to the debtor and a maximum of EUR 14 for a demand for payment (if the capital of the debt does not exceed EUR 100); EUR 24 (if the debt exceeds EUR 100 but not EUR 1000); and EUR 50 (if the debt exceeds EUR 1000). 

The Finnish Interest Act

A new provision was also added to the Finnish Interest Act on the basis of the Late Payment Directive. The said provision concerns the creditor's right to charge a penalty interest exceeding the current reference rate by eight per cent from the debtor (i.e. entrepreneur/contracting authority) in cases of late payment.

A lower penalty interest of seven per cent plus the reference rate shall continue to apply to consumer transactions in future.

The aforementioned Acts will enter into force on 16 March 2013. Previously valid provisions shall apply to debts that become due before the said Act comes into force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.