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June 24, 2021

New Guidelines Prevent Large Purchasers from Setting Unfair Credit Terms for SMEs in Thailand

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Thailand’s Trade Competition Commission (TCC) has adopted new guidelines on unfair trade practices regarding the credit terms under which small and medium enterprises (SMEs) sell products or services to a purchaser. The new guidelines were published in the Government Gazette on June 18, 2021, and will come into force 180 days later on December 16, 2021.

In principle, the guidelines prevent the abuse of superior bargaining power, discrimination, and business obstruction when purchasers set credit terms with SMEs. The guidelines define an SME as:

  1. a manufacturer of goods with either no more than 200 employees or an annual turnover of no more than THB 500 million (approximately USD 15.75 million); or
  2. a service provider or wholesale or retail business with either no more than 100 employees or an annual turnover of no more than THB 300 million (approximately USD 9.5 million).

To be eligible for protection under the guidelines, qualifying SMEs must disclose their total number of employees or amount of annual turnover to their trade partners.

Credit Terms

“Credit terms” are defined as written stipulations referring to the agreed timeframe in which sellers of products or services permit the purchasers to make the necessary payment. These credit terms must include clear criteria reflecting ordinary business practices and reasonable justifications.

In general, the guidelines prescribe that credit terms for the trade, manufacturing, and services sectors, must not exceed 45 days. However, for activities in these sectors related to agricultural products or primary agricultural processing with non-complex production processes, the credit terms must not exceed 30 days. However, the parties may set longer credit terms if there are business, marketing, or economic justifications and contractual obligations related to the payment or credit terms.

The credit terms period will commence from the date of complete delivery of products or services. As for consignment, credit terms begin counting from the day that the products are sold out according to the agreed quantity or price.

Unfair Practices

The guidelines provide a few illustrative examples of the types of conduct that would be deemed unfair:

  • An unjustified delay in making payment for products or services, in excess of the stipulated credit terms.
  • An unjustified change of credit terms or contractual conditions without at least 60 days’ prior notice.
  • Other unfair conduct or credit term conditions that impose excessive burdens on an SME.

Before these guidelines, when large purchasers of goods or services from SMEs defaulted on their payments or used their bargaining power to extend credit terms, the SME’s only recourse was to bring a breach-of-contract claim to the civil court. When the new guidelines come into effect, SMEs will also be able to petition the TCC, which may impose administrative sanctions including fines of up to 10% of the annual revenue of the non-complying purchaser.

In addition, pre-existing credit terms are not exempt from the new provisions and could be deemed unfair if they are contrary to the guidelines or disadvantage an SME. Therefore, business operators with active or pending agreements should also revisit and consider adjusting the credit terms to ensure that they comply with the guidelines.

Accordingly, all parties who trade with SMEs should take the guidelines—especially the prescribed maximum credit terms—into account when determining credit terms and trade conditions.

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