Legal Alert – New Act on Payment Terms in Commercial Contracts
A new Act on Payment Terms in Commercial Contracts (30/2013) will enter into force on 16 March 2013. The new Act will apply to payments in commercial transactions between undertakings or between an undertaking and a contracting authority, when the creditor is an undertaking. In addition to the new Act, the Interest Act (633/1982) and the Act on Debt Collection (513/1999) will be amended. The reform implements EU directive 2011/7/EU intended to combat late payment in commercial transactions, as late payments have been considered to hinder competitiveness and profitability, affect liquidity and complicate the financial management of undertakings.
The new Act applies in cases where the payment concerns compensation for goods or services. The new Act is mandatory law and cannot therefore be deviated from to the detriment of the creditor. One of the most interesting reforms in the new legislation is the following list of ineffective provisions in commercial contracts:
- Provisions that exclude the creditors right to interest for late payment.
- Provisions that require a lower rate than what is imposed for late payment interest in section 4, subsection 2 of the Interest Act when the debtor is a contracting authority.
- Provisions that exclude the creditors rights to compensation for collection charges, unless there is an objective reason for using of such a provision.
The new Act also includes provisions specific to contracts for delivery of goods. These include certain changes to maximum payment terms and to maximum terms for conducting an acceptance procedure of delivered goods. When the debtor is an undertaking, the term for payment may be over 60 days only when explicitly agreed. When the debtor is a contracting authority, the maximum term for payment shall be 30 days and 60 days when explicitly agreed for objective reasons. According to the new Act, a new time limit for acceptance procedure relating to any delivered goods shall be as a premise 30 days unless otherwise explicitly agreed. Additionally, certain unfair contract provisions under the new Act may be adjusted in accordance with section 36 of the Contracts Act.
Changes to the Act on Debt Collection: According to the new legislation, the creditor is entitled to a fixed remuneration (40 euros) that is automatically triggered in case of delay in payment. The creditor is also entitled to claim compensation for its actual debt collection related costs in case it can show that such costs exceed the fixed remuneration.
Changes to the Interest Act: After the reform, the Interest Act will contain two distinct interest rates for late payments: the general rate for late payments and a new rate for late payments applying to commercial contracts under the Act on Payment Terms. After the reform takes effect, the rate of interest for late payment shall be 8 percentage points higher than the reference rate for matters under the new Act. However, undertakings may use a single interest rate in certain cases depending on the nature of the delayed payments.
The new legislation and the supplementary amendments will enter into force on 16 March 2013.