Late payments have long been one of the biggest problems facing European SMEs. According to the European Commission, late payments cause the bankruptcy of approximately 50,000 SMEs annually in the EU. For this reason, the EU has revised the Late Payment Directive by tightening payment term rules and strengthening creditors' rights. In this article, we explain what the directive means in practice for Finnish businesses.
What is the EU Late Payment Directive?
The EU Late Payment Directive is a regulation that sets minimum requirements for B2B payment terms and late payment penalties across all EU member states. The original directive from 2011 already sought to limit unreasonable payment terms, but in practice its effectiveness was limited. The revised directive significantly tightens the rules and improves enforcement.
The directive aims to protect small and medium-sized enterprises in particular, as they have a weaker negotiating position against large buying companies. In many industries, large buyers have dictated long payment terms to subcontractors, shifting the working capital risk to smaller companies.
The 30-day default rule and 60-day maximum
The key change in the directive is the restriction of payment terms. In B2B trade, the default rule is a 30-day payment term from receipt of invoice. A longer payment term may be agreed upon, but the absolute maximum is 60 days. Previously, payment terms could be agreed more freely, leading to terms of 90–120 days, particularly in international trade.
For public sector buyers, the payment term is stricter: 30 days with no possibility of agreeing on a longer period. This is a significant change for companies that supply to municipalities, hospital districts, or government agencies. In Finland, public sector payment terms have traditionally been reasonable, but the directive ensures that the situation does not deteriorate.
Practical impact: If your current contracts include 60-day payment terms, they can continue. However, terms exceeding 60 days are no longer permitted, and 30 days is the default that applies if nothing else has been agreed.
Late payment interest and recovery compensation
The directive strengthens the creditor's right to late payment interest and recovery compensation. The statutory late payment interest rate is the ECB reference rate plus at least eight percentage points. At 2026 levels, this translates to approximately 12 percent annual late payment interest. Late payment interest accrues automatically once the payment term has expired, without separate notification.
Additionally, the creditor is entitled to a minimum EUR 40 recovery compensation for each overdue payment. This compensation is intended to cover the administrative costs of collection, and the creditor does not need to separately prove their costs. If actual collection costs exceed EUR 40, the creditor may claim compensation based on actual costs.
Impact on Finnish B2B trade
In Finland, the average B2B payment term is approximately 36 days according to the Federation of Finnish Enterprises, so the majority of Finnish companies already comply with the directive's requirements. The biggest changes affect companies that trade internationally or whose customers have long payment terms. Payment terms of 60–90 days still occur particularly in the construction, manufacturing, and transport sectors.
Concrete actions for Finnish businesses:
- Review the payment terms in your contracts and ensure they comply with the directive
- Update your general terms and conditions to clearly define the payment term
- Systematically apply late payment interest and recovery compensation
- Streamline your invoicing process – ensure the invoice is sent immediately after delivery
- Monitor actual payment times and respond to delays promptly
- Train your sales team on the new payment term rules
Invoice financing and the Late Payment Directive
During the transition period of the Late Payment Directive, invoice financing is an especially useful tool. While the directive shortens payment terms in the long run, many customers will continue their accustomed long payment practices during the transition. With invoice financing, a company receives proceeds from its receivables immediately after sending the invoice, regardless of whether the customer pays in 30 or 60 days.
Invoice financing also helps in situations where a customer delays payment in violation of the directive. Although the right to late payment interest and recovery compensation exists, in practice charging late payment interest on long-standing customer relationships can feel awkward. Invoice financing resolves the cash flow problem without jeopardising the customer relationship.
Implementation of the directive in Finland
National implementation of the directive requires an update to the Act on Payment Terms in Commercial Contracts. The Ministry of Justice is preparing the legislative amendment, which will enter into force within the timeline required by the directive. In Finland, existing legislation already largely complies with the directive, so the main practical changes relate to the prohibition of payment terms exceeding 60 days and the strengthening of enforcement.
Strengthening enforcement means, in practice, that member states must establish or designate a supervisory authority that can investigate late payments and impose sanctions. This is a significant change from the previous situation, where the creditor had to pursue their rights in court themselves.
Summary
📌 Summary
The EU Late Payment Directive tightens B2B payment terms and strengthens creditors' position. Finnish businesses should review their contract terms, apply late payment interest, and streamline their invoicing processes. Invoice financing provides an effective way to secure cash flow during the transition period and in situations where payment terms are stretched.
