Competition: New Mandatory Credit Terms for Payments to SMEs
The Trade Competition Commission has introduced new rules governing credit terms between large businesses and small and medium-sized enterprises (SMEs). The new framework represents a significant development in the regulation of unfair trade practices by imposing maximum payment periods on large businesses purchasing goods or services from SMEs and restricting practices that may delay payment or otherwise place SMEs at a disadvantage. The rules are particularly relevant to large manufacturers, service providers, distributors, wholesalers, retailers and corporate groups that routinely procure goods or services from SME suppliers.
Who Is Subject to the New Rules?
The rules apply where an SME supplies goods or services to a large business or a large wholesale or retail business. A large business generally means a business operator whose revenue generated from business operations in Thailand in the preceding accounting year is THB 500 million or more. Importantly, the assessment is not necessarily limited to the revenue of a single legal entity. Businesses having relationships in terms of policy or control may be considered together in determining whether the threshold is met. This aggregation concept is particularly relevant to corporate groups, meaning that an entity with revenue below THB 500 million should not automatically assume that it falls outside the rules. Large businesses should therefore establish a reliable process for determining which suppliers qualify as SMEs and whether the revenue threshold is met on an individual or group basis.
Maximum Credit Terms of 30 or 45 Days:
For general trade, manufacturing and service transactions, payment must generally be made within 45 days. A shorter maximum period of 30 days applies to agricultural products and primary processed agricultural products involving uncomplicated production processes. Where the parties have already agreed to a payment period shorter than the applicable statutory maximum, the shorter agreed period continues to apply. The statutory periods should therefore be regarded as maximum limits rather than standard payment terms permitting businesses to extend existing, more favorable terms.
When Does the Credit Period Begin?
The credit period generally begins when the goods or services have been completely delivered and the required documentation is complete and correct. This makes delivery confirmation, service acceptance, invoices and supporting documentation important elements of compliance. Large businesses should examine whether their internal procedures could effectively postpone the commencement of the payment period. Requirements relating to acceptance certificates, invoice submission, tax invoice corrections, procurement approvals or other supporting documents should have a legitimate operational basis and should not be used as mechanisms to delay payment. Compliance may therefore require coordination among procurement, business units, finance, legal and accounts payable functions.
Unfair Payment Practices:
The rules extend beyond maximum payment periods and address conduct that may constitute an unfair trade practice. Large businesses should not delay payment to SMEs without reasonable justification or improperly change agreed credit terms or contractual conditions. Relevant changes are also subject to advance-notice requirements, including at least 60 days’ prior notice in applicable circumstances. Accordingly, compliance cannot be achieved merely by inserting a contractual provision stating “payment within 45 days.” Repeatedly rejecting invoices for immaterial deficiencies, unnecessarily delaying acceptance of delivered goods, imposing unjustified documentation requirements or changing payment procedures in a manner that effectively extends the credit period may potentially attract regulatory scrutiny.
Impact on Existing Contracts and Procurement Practices:
The rules restrict the extent to which payment terms can simply be treated as a matter of contractual negotiation. Large purchasers may historically have required SME suppliers to accept payment periods of 60, 90 or even 120 days under standard procurement terms. Contractual agreement alone will no longer necessarily validate such arrangements where the applicable statutory maximum is exceeded. Businesses should therefore review master supply agreements, purchase orders, vendor terms, procurement policies and supplier portals, including contractual mechanisms that may have substantially the same economic effect as an extended credit term.
Competition Law Consequences:
Non-compliance may constitute an unfair trade practice under Section 57(4) of the Trade Competition Act B.E. 2560 (2017) and may result in an administrative fine of up to 10% of the offender’s revenue in the year in which the violation occurred. It is important to distinguish this administrative liability from criminal liability under other provisions of the Act. A violation of the credit-term requirements does not, by itself, automatically constitute a criminal offense. However, the same conduct may separately fall within other provisions of the Act, including those concerning abuse of dominance or anticompetitive conduct, where the relevant statutory elements are independently satisfied.
Preparing for Compliance:
Affected businesses should review both their contractual documentation and actual payment processes. The review should identify SME suppliers, determine whether the THB 500 million threshold applies on an individual or group basis, classify transactions subject to the 30-day and 45-day limits, and examine master agreements, purchase orders and standard procurement terms. Businesses should also review how they determine complete delivery and receipt of correct documentation and ensure that invoice approval, dispute resolution and accounts payable processes do not unnecessarily extend payment periods. For corporate groups with centralized procurement or accounts payable functions, supplier classification and automated payment-term controls within ERP or payment systems may provide an effective compliance mechanism.
Key Takeaways:
The new credit-term rules materially strengthen payment protection for SMEs dealing with larger counterparties. Businesses meeting the THB 500 million revenue threshold, including through aggregation where applicable, should assess their procurement relationships and identify SME suppliers subject to the new regime. The principal maximum credit terms are 45 days for general trade, manufacturing and services and 30 days for qualifying agricultural and primary processed agricultural products. Compliance extends beyond contractual wording to delivery acceptance, documentation, invoice verification and actual payment practices. Given the potential administrative fine of up to 10% of annual revenue, affected businesses should treat compliance with the new credit-term requirements as a competition-law and procurement compliance issue rather than merely an accounts payable matter.
Author: Panisa Suwanmatajarn, Managing Partner.
Other Articles
- Thailand–Canada Free Trade Agreement (TCAFTA): Cabinet Approves Negotiating Framework
- Thailand’s DIP Consults Stakeholders on Strengthening IP Protection and Enforcement
- DIP e-Exchange: A New Framework for Accessing and Using IP Data
- When Health Data Moves Beyond Its Original Purpose
- Criteria and Conditions for Allowing Foreign Nationals to Use Automated Passport Control Channels
- Substantive Agreement Reached on the Thailand–United States Agreement on Reciprocal Trade (ART)