Wednesday. 26.06.2019
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ENTREPRENEURS GUIDE

Understanding the possibilities and pitfalls of digitalization

Digitalization is widespread in Finland. Not only authorities are using a digital interface to your business, it is common that accounting companies, banks, insurance companies and other finance companies offer also electronic services to businesses.

Photo: Karolina Grabowska.
Photo: Karolina Grabowska.
Understanding the possibilities and pitfalls of digitalization

The level of digitalization in Finland is high in comparison to almost any other country in the world. 

Operating a business in Finland requires that you take into consideration the possibilities and pitfalls of digitalization. From the point of view of an entrepreneur this brings at least 3 aspects to the table:

1. Digital interface to authorities

There is a digital interface to practically every authority related to practicing business in Finland.

The regulation is that every business should declare its taxes and salary information using this interface at certain dates set in law. Most commonly it is the accountant of the business who takes care of these declarations to appropriate authorities.

At the end of the day, however, it is nearly always the entrepreneur who bears all responsibility of these declarations being correct as it is considered that the accountant of the business is only technically recording the accounting material the entrepreneur provides to the accountant.

Making these self-imposed declarations is considered the most important public duty to be taken care of when running a business in Finland.

A foreign background businessman should therefore understand and take into account in running the business operation that as and when these compulsory declarations are made in digital form, a database is automatically created from which any negligence is easily -and often automatically- picked up.

The idea of the above mentioned quite strict regulation of self-imposed declarations to authorities from the point of view of the business is that the Tax (Vero) and other authorities get correct information from businesses regularly and in time.

Therefore, one should find a good accountant with whom he can communicate in order to ensure that bookkeeping is appropriately executed and declarations are of correct content. In order to avoid any misunderstandings and future problems one should be able to correct your businesses accounting -and audit trail- practices if needed.

Computer screen statistics digital

2. Digital interface to business partners and clients

As digitalization is widespread in Finland, not only authorities are using a digital interface to your business. It is quite common today that for example, accounting companies, banks and other finance companies as well as insurance companies offer various electronic services to businesses. These services offered by your business partners often include but are not limited to electronic billing, payments and bookkeeping.

From the point of view of an entrepreneur, using electronic services with your business partners brings up certain issues related mainly to the administration of your business as there has to be by law an audit trail (paper or 'electronic' trail that gives a step by step documented history of a detailed transaction relating to any item in an accounting record) in your bookkeeping.

As today businesses in Finland have often both electronic and paper material in their bookkeeping, it is the responsibility of the entrepreneur to ensure that there is a reliable audit trail of your business regardless of the form of the type of the record of a transaction.

Usually businesses in Finland rely on their accounting partner to take care of this audit trail, but the person running the business should understand how audit trail is recorded and operated, and that the bookkeeping material in this audit trail is correct and adequate.

Reliable and adequate audit trail system is essential for example when your business faces a tax-inspection or is for some reason possibly involved in a police investigation.

Be careful with emails and social media messages

Another aspect to digital interface to your business partners is that commonly offers are accepted and business contracts are made using, for example, e-mails or some other electronic form.

As these e-mails or social media messages tend to be quite brief and general many of the disputes of the business rise from the uncertainty of these short and sometimes careless messages -it is easy to say afterwards for example, that “…we did not agree to this-or-that…” or to claim that “…I don’t have to pay as you did not deliver as agreed or not in time”.

In order to avoid these kinds of pitfalls a businessman should ensure always that electronically made contracts are detailed enough, meaning that all the essential terms of the contract are written out and they are also confirmed by your counterpart.

To make things even worse it is quite common that something, which was agreed through electronic media, is afterwards changed or re-agreed through phone conversations or with an unclear electronic message. One should always record this kind of alteration to the original contract by sending a detailed enough confirmation to your counterpart.

Oral agreements are considered binding

As in Finland oral agreements are considered binding and as the burden of proof lies on the party asserting to the alleged contract and its content, it is of best interest of the business to make sure that the possible electronic contract is detailed enough, updated if altered, and appropriately confirmed by your counterpart.

Digital interface to your clients consists of all website and social media operations you target to your potential customers. Sometimes your clients also make orders or commit themselves to your business from a distance.

If your clients are private persons there is regulation of consumer protection you should take into account. This is a subject we will attend more thoroughly later in this article-series. Here just briefly that in Finland in distance selling consumers have a right to withdraw from a contract during withdrawal period and have also right to return a possible product they received for example by mail.

Business Computer Phone Online Shopping by PhotoMIX Ltd

3. Digital Payments

Most of the businesses in Finland are conducted through electronic banking and/or some other form of digital payments. There are many operators, for example banks and tele-operators, offering numerous kinds of electronic payment services.

If and when money-transfers are made electronically, they should be reliable and accountable from the point of view of your accounting system. Provided, of course, that appropriate evidence of these payments are forwarded to your accountant.

As cash is still being widely used, one must take care of that cash-business is also appropriately recorded and taken into the bookkeeping of the business. One of the most common reasons for estimated tax is that the cash-business is inadequately or unreliably recorded.

In Finland there is regulation concerning cash books in which the businesses should keep a record of their cash-business. We are going to address the issue of keeping cash books in detail later in our article-series.

Practical points you must keep in mind

  1. Making self-imposed declarations to authorities creates a database from which any negligence is easily -and often automatically- picked up. You should therefore find a good accountant who you understand, and with whom you feel comfortable to work with.
  2. Understanding and taking care of your businesses audit trail prevents problems, for example in tax-inspections.
  3. Electronically made contracts must be specific enough, updates should be done at least through the same media the original contract was entered into if altered and confirmed by your counterpart.
  4. Oral agreements are binding in Finland.
  5. The law of consumer protection is applied to distance selling if your clients are private consumers.
  6. Even though more and more business is conducted digitally cash is still widely used. You should have a cash book or cash machine in order to minimize your risks in a possible tax-inspection.

Where to contact?

If you are facing an inquiry or some action from any authority and you do not feel comfortable dealing with the matter yourself, or you seek any other advice related to your business, please feel free to contact the authors of this article through the email address [email protected]

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