Thailand’s Trade Competition Commission Issues Updated Guidelines on Credit Terms for SMEs

On 16 December 2021, the Announcement of the Trade Competition Commission regarding the Guidelines for the Assessment of Fair Trade Practice in the Provision of the Credit Term for a Small and Medium Enterprise who is a Seller or Service Provider dated 24 May B.E. 2564 (2021) (the “Announcement”) came into force. This Announcement is intended to regulate and limit the length of credit terms imposed by service receivers or buyers on business operators who are qualified as small-medium enterprises (“SMEs”). Although, the Announcement attempts to ensure fair trade practices and to increase SMEs’ liquidity, the definition of an SME prescribed therein could potentially become problematic. The characteristics that qualify a business as an SME under the Announcement primarily focus on either the number of employees or the amount of annual turnover of each business. Such stipulation may cause a loophole. For instance, a business operator who earns more than Baht 500 billion annual turnover, but has a small number of employees would be categorized as an SME, pursuant to the Announcement. On the other hand, a business with a significant number of workforce which receives a small amount of annual turnover would also earn an SME status.

As a result, the Trade Competition Commission (the “Commission”) recently provided further guidelines on this matter in order to tackle the issues at hand. The updated guidelines i.e. the Announcement of the Trade Competition Commission regarding the Guidelines for the Assessment of Fair Trade Practice in the Provision of the Credit Term for a Small and Medium Enterprise who is a Seller or Service Provider (No. 2) dated 6 July B.E. 2565 (2022) (the “Second Announcement”) were published in the Royal Thai Government Gazette on 17 August 2022 in which it will take effect on 16 September 2022.

In this regard, the definition of an SME and the provision regarding payment of trade credit are amended as follows:

Definition of an SME

According to the Second Announcement, the following conditions must be satisfied to be deemed as an SME:

• A business operator who manufactures, with no more than 200 employees and with the annual turnover of not over Baht 500 million; or
• A business operator who provides a service, wholesale or retail business, with no more than 100 employees and with the annual turnover of not over Baht 300 million.

Payment of Trade Credit

Under the Announcement, an SME is obliged to provide its business partner with evidence of the number of employees or its annual turnover to prove its SME status.  However, the Second Announcement has overridden the previous provision by requiring both evidence, reflecting the revised definition of SMEs.

In this respect, the Second Announcement has clarified the characteristics of a business operator who will be eligible for protection from unfair trading practices, particularly conducts relating to credit terms agreement. Due to the amendments to the Announcement, any buyer or service receiver must ensure that the contractual provisions pertaining to credit terms with an SME who falls under the Second Announcement are in compliance with the updated guidelines of the Commission.

It must be noted that the Announcement shall still be applicable to any pending action of the Commission or the Trade Competition Commission of Thailand prior to the enforcement of the Second Announcement until completion thereof.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please contact:

Chavalit Uttasart
Partner

Siriwan Nopareporn
Attorney-at-law

Jarawee Suksngacharoen
Associate

Authors