Direct Purchase Payment Deadline Shortened from 60 to 30 Days
Legal Revision Planned for Early Next Year
The statutory payment deadline for large-scale retailers to pay suppliers and vendors will be shortened to 30 days, which is half of the current legal limit. This measure aims to address the practice of delayed payments by some companies, such as Coupang and Daiso, who have been making payments close to the 60-day legal deadline.
The Fair Trade Commission announced on the 28th a set of "Improvement Measures for Payment Deadlines in the Retail Sector." According to the new measures, for direct purchases, the payment period will be reduced to 30 days from the date of product receipt. However, if settlements are made once a month, an exception will be made for convenience, allowing payment within 20 days from the end of the month (the purchase closing date). For consignment purchases, the payment period will be shortened from 40 days to 20 days from the sales closing date.
Direct purchase refers to a transaction where the retailer purchases goods directly from the supplier and sells them. In consignment purchases, the retailer buys goods on credit, sells them, pays the supplier after the sale, and returns unsold goods.
The Fair Trade Commission explained that most direct purchase payments are already made within 30 days, but there are nine companies that pay around 60 days. The system is being revised to bring these companies in line with the industry average.
For consignment purchases and similar transactions, the decision was based on the development of settlement systems, which have shortened payment periods across the industry, and the fact that retailers have less need to hold on to sales proceeds for extended periods compared to direct purchase transactions.
Exceptions will be made in cases where payment delays are not the fault of the retailer, such as when the supplier is subject to seizure or provisional seizure, cannot be contacted, or when payment is deposited with the court. In these cases, delayed payment will not be considered a violation of the law.
To allow the retail industry time to adapt, there will be a one-year grace period after the law is promulgated before the new rules take effect.
The Fair Trade Commission stated, "Following incidents such as the TMON and Wemakeprice cases and the Homeplus rehabilitation process, there have been ongoing concerns that the current legal payment deadlines are insufficient to protect suppliers. As a result, we are pursuing these improvements."
They added, "We expect that payment settlement safety will be enhanced and cash flow will improve, contributing to balanced growth and development between retailers and suppliers."
Meanwhile, according to the results of a survey on payment practices among large retailers released by the Fair Trade Commission on the same day, nine companies, including Coupang, that engage in direct purchase transactions with suppliers, paid an average of 53.2 days after receiving goods. The Act on Fair Transactions in Large Retail Business requires payment within 60 days of receipt, meaning these companies are using the maximum allowed period.
The average number of days each company took to make payments was: Coupang, 52.3 days; Daiso, 59.1 days; Kurly, 54.6 days; M Chuncheon Branch and Mega Mart, 54.5 days; Electroland, 52.0 days; Youngpoong Bookstore, 65.1 days; Homeplus, 46.2 days; and Homeplus Express, 40.9 days.
Among direct transaction retailers, 80.6% paid within an average of 40 days after receiving goods, while 6.1% exceeded 50 days. Notably, Youngpoong Bookstore's average payment period exceeded the legal deadline. This company sometimes pays by promissory note or similar means, and the period was calculated based on the maturity date.
In the case of Coupang, after the 2021 amendment to the Act on Fair Transactions in Large Retail Business introduced the 60-day rule, the company reportedly changed its practice from paying in about 50 days to nearly 60 days. However, since there are also cases where payments are made more quickly, the average was calculated as 52.3 days.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
