The Trade Competition Commission of Thailand (TCCT) in June 2021 set new guidelines on “fair trade practices regarding credit terms for Small and Medium-sized Enterprises.” These guidelines came into effect on 16 December 2021. This regulation sets the duration of credit terms to SMEs, thereby providing greater control for vendors when negotiating payments for goods and services.
The guidelines are expected to level the playing field between buyers and sellers, particularly when the buyer is larger and able to dictate advantageous payment terms. This also provides SMEs with better opportunities to secure much-needed cash amid the economic difficulties brought by the COVID-19 pandemic.
Summary of the guidelines
The guidelines are specifically for SMEs that are either: 1) a manufacturing company that employs less than 200 employees earning no more than THB 500 million a year, or 2) a service provider, including retail and wholesale traders, employing less than 100 employees earning no more than THB 300 million a year. Once the seller is verified, it does not matter if the buyer is also an SME.
In implementing these guidelines, only employees employed by the company under an employment contract will be counted, while those hired on a work contract or an outsourcing basis will not be considered employees. Moreover, the annual revenue calculation includes income from both core business activities and other residual incomes.
SMEs will also be required to verify their status to buyers by presenting documents that confirm their position. These include:
- Documents that confirm how many employees the seller employs, such as social security forms or receipts of payment; and
- Documents that provide the seller’s annual income during the latest year, such as financial statements submitted to the Department of Business Development.
Duration of credit terms
The duration of any credit term is based on the products and/or services offered. Buyers and sellers must agree to credit terms in writing.
Parties can only agree to credit terms beyond 45 days (30 days for agricultural products) if there is a justified business, marketing, or economic reason for doing so on a case-by-case basis. Credit terms are to start on the date a product or service has been completely delivered as agreed between a buyer and a seller; or in the case of a consignment, the date on which products have been fully sold.
Penalties for non-compliance
Buyers that fail to comply with the guidelines will face a penalty of up to 10 percent of their annual revenue. Directors, managers, and personnel are also subject to penalties. The buyer, regardless of whether they are considered an SME, will be subject to the provisions outlined in these guidelines.
There have been many reported cases of predatory behavior by buyers which have led to unjustified delays in making payments for products or services, unjustified changes in agreed credit terms without prior notice, as well as other unfair conduct that places financial pressure on SMEs. Before the new guidelines, the only recourse available to SMEs was to submit a claim to the courts for breach of contract.
Under the new guidelines, smaller vendors will also be able to petition instances of unfair practices to the TCCT, which has the authority to impose these new administrative sanctions. In addition, existing credit terms are subject to these guidelines, which means unfair terms must be renegotiated.