New Guidelines on Credit Terms and Unfair Trade Practices to Favor SMEs

On 24 May 2021 the Trade Competition Commission (TCC) of Thailand announced new antitrust guidelines in relation to the credit terms under which small to medium sized enterprises (SMEs) sell goods and services. The new guidelines, which were published in the Gazette on June 18, 2021 will come into force on 16 December 2021, after the lapse of the 180-day waiting period.

Essentially, the guidelines act as a protective mechanism against the abuse of superior bargaining power, discrimination and business obstruction when dealing with buyers. The guidelines define SMEs as:

1.   Manufacturing businesses which have 200 employees or less or have an annual revenue of THB 500 million or less; and

2.   Service or trading businesses which have 100 employees or less or have an annual revenue of THB 300 million or less.

Credit Terms 

Credit terms refer to the written agreed timeframe in which buyers must make the relevant payment for goods and services provided by sellers.

Under the guidelines, the TCC identifies an appropriate credit term between a seller SME and respective buyer, as not exceeding:

   45 days for trade, manufacturing and service sectors; or

   30 days for trade, manufacturing and service sectors for agricultural products or primary processed agricultural products with non-complex production processes.

For the purposes of these maximum credit terms, the period begins from the date the products and services are delivered and the relevant documents are submitted. For a consignment transaction, the term date begins on the completion of the sale by the consignee, as agreed by the parties. In saying this, parties may agree on longer credit terms if there are business, marketing or economic justifications and contractual obligations related to the payment or credit terms.

Unfair Trade Practices

In addition to outlining maximum credit term periods, the TCC also provided examples of situations that could be considered unfair trade practices. According to the guidelines, the following acts may be deemed as unfair:

   An unjustified delay in making payment for products or services beyond the stipulated credit terms.

   Changing credit terms or contractual conditions without at least 60 days’ prior notice on justifiable grounds.

   Other unfair conduct e.g. specific conditions that impose excessive burdens on an SME.

The Guidelines Moving Forward

Previously, SMEs were limited to bringing a breach of contract claim to the civil court in circumstances where purchasers of goods or services defaulted on their payments or used their superior bargaining power to extend credit terms. The guidelines bring a welcome change for SMEs, allowing them to now petition the TCC in these scenarios. In accordance with a breach of Section 57 of the Trade Competition Act 2017, the TCC may impose hefty sanctions on the non-complying purchaser, including administrative fines of up to 10% of the annual revenue of the defaulting party.

Importantly, the new provisions apply to pre-existing credit terms, meaning the guidelines apply retrospectively and existing agreements could be deemed unfair if they are contrary to the guidelines or disadvantageous to an SME. Both purchasers and seller SMEs should revisit any active or pending agreements to ensure that they comply with the guidelines by the December implementation date.

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