'35-Day Payment Law' Fast-Tracked... Retailers Warn "SME Market Access Will Shrink Further"

Payment Deadline for Direct Purchases Shortened by 25 Days
Purchases Likely to Focus on Fast-Turnover Large Company Products
Small Brands Hit Hard, While Up to 120 Days Allowed Overseas

Amid a push to shorten the payment period for supply settlement by large retailers from the current 60 days to 35 days following the T-MAP incident, the retail industry has expressed strong opposition. Retailers argue that accelerated settlement would intensify cash flow pressure, leading to a reduction in product purchases and concentrating the damage on small- and mid-sized suppliers. There are concerns that purchasing will shift toward fast-selling large corporate brands, further narrowing the market entry for smaller and newer suppliers.

According to industry sources on September 2, the National Assembly’s Political Affairs Committee Bill Review Subcommittee 2 passed an amendment to the Act on Fair Transactions in Large Retail Business the previous day, which mandates that payments on direct purchases be made within 35 days of receipt of goods. This applies to retailers with annual sales of at least KRW 100 billion. The payment period for special contract purchases, consignment, and sublease transactions—where retailers manage sales proceeds on behalf of vendors—has also been shortened from 40 days after the end of the sales period to within 20 days.

Faster Settlement Reduces Purchases, Small Businesses Hit First

Major retailers that currently pay for direct purchases after more than 35 days include Daiso, Coupang, Kurly, and Homeplus Express. Electronic Land, Youngpoong Bookstore, TV home shopping channels, and certain e-commerce platforms are also expected to be affected.

Direct purchase refers to a method in which retailers buy goods outright and take on inventory and sales responsibility. The retail industry asserts that if the payment period is shortened, less capital will be available for purchasing, making it likely that retailers will prioritize fast-turning popular items over seasonal products or new brands.

An industry insider commented, "More cash will be tied up before items are even sold. As the purchasing budget tightens, big corporate products with fast sales will remain, but products from small and new suppliers may be squeezed out." Professor Kang Hyunggu from Hanyang University’s Department of Finance and Business explained, "Shorter settlement periods require companies to secure more working capital and also increase their financing costs." According to Professor Kang’s analysis, if a company with an annual purchasing cost of KRW 1 trillion and a 6% procurement interest rate shortens its payment period from 60 days to 30 days, this results in an additional annual cost of about KRW 5 billion.

Based on research by Professor Yoo Byungjun of Seoul National University's Business Administration Department, if the e-commerce payment period is cut from 60 days to 20 days, total economic losses to suppliers, consumers, and direct-purchase platforms could reach an estimated KRW 47.7 trillion. After one year, the ratio of suppliers maintaining business relationships with retailers falls to 74%, and damages to small and medium-sized suppliers could reach up to KRW 21 trillion per year.

Direct Purchases Decrease while Special Contract Purchases Could Rise

The retail industry notes that it is difficult to find cases in the U.S., Europe, or Japan where payment period reductions have been imposed uniformly without considering business sector or product characteristics. The European Union allows payment periods of up to 60 days if agreed upon with suppliers. For slow-moving or seasonal inventory, exceptions of up to 120 days are permitted. The European Commission’s 2023 proposal to limit the payment period to 30 days in principle encountered resistance due to concerns about narrower market access for small businesses and increased financial burden on retailers.

According to the retail industry, Amazon and Walmart in the U.S. set a maximum payment period of 90 days depending on transaction terms; Costco and Best Buy allow up to 60 days. In Japan, Aeon Group and Seven & I Holdings permit up to 60 days, while some large retailers in China operate with payment periods ranging from 90 to 120 days.

Some point out that stricter settlement regulations could prompt retailers to reduce direct purchases and instead increase the use of special contract or consignment deals. In special contract purchasing, the retailer receives goods on credit, remits payment excluding commissions after sales, and returns unsold items. This increases inventory risk for small suppliers and may weaken their negotiating power with retailers.

The Korea Development Institute (KDI) analyzed Fair Trade Commission decisions from 1998 to 2020 and found that the number of unfair practices per KRW 100 billion in transaction volume was 4.24 for special contract purchases—more than twice that of direct purchases, which stood at 2.1. A Fair Trade Commission field study also showed delayed payment experience rates of 4.3% for special contract purchases, compared with 2.9% for direct purchases.

Professor Jeon Seongmin from the Department of Business Administration at Gachon University stated, "Rather than the speed of settlement, the focus should be on transaction stability and autonomy. Even overseas, broad exceptions are recognized based on company scale, industry characteristics, and transaction type."

Lee Dongil, honorary president of the Korea Distribution Association and professor at Sejong University, commented, "The T-MAP incident was caused by a failure in cash flow management, which undermined market trust; it was not the settlement cycle itself that was the problem. The new regulation could deliver a serious blow to retail platforms lacking sufficient financial resources."

This content was produced with the assistance of AI translation services.