Payment deadline for special purchase, consignment deals cut from 40 to 20 days

Exemptions available with Fair Trade Commission approval during financial crises

Department stores, hypermarkets, online shopping malls and other large retailers will be required to pay suppliers in half the time currently mandated by law.

The Korea Fair Trade Commission said Thursday that the National Assembly passed an amendment to the Large-Scale Retail Business Act at a plenary session. The revised law will take effect one year after promulgation, following cabinet approval and other required procedures.

Customers walk through a food and beverage section of a department store in Seoul. [Yonhap]
Customers walk through a food and beverage section of a department store in Seoul. [Yonhap]

Under the amendment, the payment deadline for special purchase, consignment and lease transactions will be cut from 40 days to 20 days after the monthly sales closing date. A government survey found that the average payment period for such transactions was already around 20 days, and the time needed to complete settlements was also taken into account.

For direct-purchase transactions, the deadline will be shortened from 60 days to 35 days after the date goods are received. The Fair Trade Commission had initially planned to set the limit at 30 days, citing an industry average payment period of 27.8 days, but adjusted it to 35 days during National Assembly deliberations to account for the burden on retailers and the feasibility of compliance. The adjustment also reflected the fact that direct-purchase arrangements may require payment even for goods that have not yet been sold.

An exception will allow direct-purchase transactions settled once a month to make payments within 20 days of the monthly purchase closing date. Exemptions will also apply when delays stem from circumstances beyond the retailer's control, such as natural disasters or the seizure of a supplier's bonds.

In direct-purchase transactions, retailers facing urgent financial concerns — such as bankruptcy proceedings, corporate rehabilitation or a sharp deterioration in cash flow — may apply to the Fair Trade Commission for approval to be exempted from the payment deadline. The commission said it will grant such approval only in cases where the inability to make payment is objectively clear, to prevent abuse of the exemption.

Specific grounds for exemptions and the procedures involved will be incorporated into subordinate regulations during the one-year grace period, following consultations with stakeholders and expert advisory reviews. The revised law will apply to goods received or sold after it enters into force.


y2k@heraldcorp.com