Promoting Shorter Payment Terms in Japan

Starting November 2024, Japan's Subcontract Act will enforce new operational rules to improve payment conditions for small and medium-sized enterprises (SMEs). The Ministry of Economy, Trade, and Industry, in collaboration with the Fair-Trade Commission, is urging industry groups to reduce the payment terms for promissory notes, electronic recorded obligations, and lump-sum payments. Historically, payment periods of more than 60 days have been challenging for subcontractors, prompting this regulatory adjustment to shorten payment durations. This initiative aims to ensure more rapid compensation within supply chains, thus enhancing the financial stability of SMEs across various sectors. The government's directive also includes administrative guidance for instances where payment terms exceed the established 60-day limit, marking a significant shift towards fostering fairer trade practices in Japan.