Thailand Legal Update on Credit Term Criteria for SMEs
On 17 August 2022, the Trade Competition Commission of Thailand (“TCCT”) issued the Notification of TCCT on Guidelines for Determining Fair Trade Practices Relating to Provision of Credit Terms for Small and Mediums Enterprises (“SMEs”) being Sellers or Service Providers (No.2) (“Notification”) which came into effect on 16 September 2022.
This Notification has tightened the definition of SMEs from either (i) a service, wholesale, or retail having either a total amount of employees not more than 100 employees or (ii) an annual income as a maximum at THB 300 million per year, to requiring that the operators must not have more than 100 employees AND the income must not be more than THB 300 million per year.
As a reminder, qualified SME operators will enjoy more favorable credit terms under the Notification as follows:
Credit terms between the SMEs and the business partners for trade, manufacturing and services, shall not exceed 45 days. For trade, manufacturing and services relating to agricultural products or processed agricultural products with simple production method, the credit terms shall not exceed 30 days.
However, such credit terms could be contractually agreed otherwise in writing by the SMEs and the business partner. In such an event, the proposed credit term which would be longer than the above-mentioned guideline shall be supported by reasonable grounds in terms of commercial, marketing or economic aspects. For example, the supporting commercial aspect could be that the SME and business partner agreed on the credit term in their past business practice and already reflected their intention in the agreement.
The Notification also outlines certain unfair trade practices relating to credit terms, such as delayed payment beyond the agreed credit term, unilateral change of credit terms without a justifiable reason or without a 60-day advance notice to the SMEs, or other special beneficial credit term conditions for an SME which imposes unreasonable burdens, and the said unfair trade practice results in damages to the SME.
Finally, in order to request the most reduced credit term period permissible under the Notification, SMEs must provide to their business partner, both (i) evidence proving its total number of employees and (ii) an income statement indicating annual turnover, e.g. monthly social security contribution payment receipts, or an audited financial statement.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
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