"Payment Terms Reduced from 60 to 35 Days": Amendment to Large-Scale Retail Business Act Passes Assembly, Prevents Another "T-Mep" Crisis

Special Contract Purchases: Payment Deadline Cut from 40 to 20 Days
Measures to Prevent Recurrence of T-Mep and Homeplus Payment Incidents

The statutory deadline for large-scale retail distributors, such as hypermarkets and department stores, to pay settlement fees owed to small and medium suppliers will be drastically reduced to about half of its current level. This legal safeguard has been introduced to fundamentally block liquidity crises in distribution networks, following incidents such as the payment delays involving Tmon and Wemakeprice (known as T-Mep) and Homeplus’s rehabilitation proceedings.

On September 17, the Korea Fair Trade Commission announced that the National Assembly had passed an amendment to the "Act on Fair Transactions in Large-scale Distribution" (Large-Scale Retail Business Act), which drastically shortens the settlement payment period for large-scale distributors. This amendment is the result of merging 18 bills proposed by bipartisan lawmakers, including Lee Mi-ae and Oh Sehee, and was finalized as an alternative bill by the National Policy Committee.

The core of the amendment is the significant reduction in the period during which retail distributors can withhold payment after selling or receiving goods. For direct purchase transactions involving hypermarkets, convenience stores, and directly operated e-commerce malls, the payment deadline will be reduced from the previous 60 days from receipt of goods to just 35 days. Originally, the Fair Trade Commission aimed for a 30-day limit, but considering the burden of unsold inventory that direct purchase distributors must bear, as well as their ability to comply and to avoid disruption, the National Assembly settled on a 35-day compromise. Nonetheless, an exception was added to allow monthly settlements—the prevalent industry norm—whereby companies will not be deemed in violation as long as payment is made within 20 days of the end of the purchasing period.

For transactions such as special contract purchases at department stores and duty-free shops, TV home shopping consignment deals, and leases in complex shopping malls, the payment deadline will be halved from 40 to 20 days after the end of the monthly sales period. Authorities explained that this aligns with field practices, as they found the average actual payment period in these cases to be around 20 days and also took into account the practicalities of tax invoice settlement.

A new buffer mechanism has also been introduced to prevent liquidity crunches at retail distributors from sparking a chain reaction of bankruptcies among suppliers. In addition to unavoidable reasons such as natural disasters or supplier asset seizures, exceptions to the payment period may be granted for direct purchase transactions facing urgent business concerns such as bankruptcy, rehabilitation, or sudden deterioration of cash flow—provided there is prior approval from the Fair Trade Commission. This is designed to prevent large distributors experiencing cash flow difficulties from collapsing abruptly due to inflexible legal deadlines. To guard against abuse, the Commission will, during the one-year grace period, prepare subordinate enforcement regulations to establish strict and objective approval requirements.

The newly amended law will be promulgated following government submission and Cabinet approval, and will come into full effect one year after promulgation, taking into account the time required for distributors to upgrade their settlement systems and renew contracts.

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