One of the key themes in the retail industry for the new year is the "settlement cycle." As the government pushes a bill to cut the settlement cycle for payments to suppliers by nearly half, pressure has grown to overhaul the flow of money between platforms and suppliers. The goal is to prevent the misappropriation of settlement funds revealed in the large-scale non-settlement incident at Tmon·WEMAKEPRICE INC. (hereinafter T-MEP), but the mood across platforms and e-commerce, as well as hypermarkets, is that it has become more complicated to calculate how far to adjust settlement structures.
According to related industries on the 4th, the Korea Fair Trade Commission plans to introduce early this year a partial amendment to the Act on Fair Transactions in Large Franchise and Retail Business (hereinafter the Large Retail Business Act). However, even if the amendment passes, authorities are considering allowing a grace period of up to one year instead of immediate enforcement to give the industry time to adapt.
◇ Impact inevitable for Coupang, Homeplus Co., Asung Daiso Co., and others if settlement cycles are shortened
The core of the amendment to the Large Retail Business Act is a shorter settlement deadline. The statutory settlement deadline for "direct purchase transactions," in which a retailer buys goods directly from a supplier and sells them, will be reduced from 60 days to 30 days. "Special agreement purchase" or consignment transactions, in which the retailer buys on credit, sells and then pays, and returns unsold goods, will also be cut from 40 days to 20 days.
Debate over restructuring settlement systems gained traction after the 2024 T-MEP incident. Even though goods were sold, delayed payments triggered a chain of losses for suppliers and on-platform sellers, and some settlement funds were alleged to have been diverted to operating capital. Added to this were recent disputes over responsibility surrounding Coupang, a major domestic platform, raising concerns that if a platform faces trouble, transaction, payment, and settlement structures could be shaken all at once.
If the amendment takes effect, it will apply to large retailers, e-commerce companies, and convenience store headquarters, among other large retail operators. A full survey by the Korea Fair Trade Commission (FTC) of 132 large retailers under the Large Retail Business Act found that the settlement cycles at some major retailers were close to the legal maximum.
A representative case is Coupang (52.3 days). Others were found to be ▲ Homeplus Express 40.9 days ▲ Homeplus Co. 46.2 days ▲ Etland 52 days ▲ Mega Mart M Chuncheon 54.5 days ▲ Market Kurly 54.6 days ▲ Asung Daiso Co. 59.1 days ▲ Youngpoong Bookstore 65.1 days. The gap is sizable compared with the overall average payment periods of 27.8 days for direct purchases and 23.2 days for special agreement purchases. If the amendment is implemented, these companies will need to redesign their settlement systems and overall cash management.
◇ Industry agrees with the intent of the amendment but is "deliberating" on how to respond
The industry is closely watching the amendment. With each company's business structure and cash position different, few are moving hastily. An e-commerce industry official said, "We agree with the legal intent in that this is a process of normalizing the practice of sticking to the 'maximum' allowed by law," but added, "Logistics, information technology (IT), and settlement are all connected, so we need a clear outline of the bill to craft a realistic roadmap."
A platform industry official said, "If we preemptively respond before the law is finalized and then the criteria change later, only the expense increases," adding, "Unlike large platforms, small and midsize platforms have little in the way of emergency or surplus funds, so if the settlement deadline is uniformly shortened, they could wobble. We are watching for safeguards such as differential application by size or policy finance support."
Suppliers and on-platform sellers are also being cautious. An official at a food supplier said, "If settlements speed up, it will be much easier to manage inventory, raw materials, and labor costs, but we can only respond after the law takes effect, when it becomes clear which transactions will be applied first and how."
The industry agrees with the intent of the amendment but believes policy design is crucial. While accelerating settlements is the right direction, the ripple effects on the market will vary depending on how it is applied, given that transaction types, company sizes, and funding structures all differ.
Lee Jong-u, a professor of business administration at Ajou University, said, "The amendment's direction is desirable, but as distribution structures and platform models have diversified, the policy needs to be designed with precision, including 'to whom and how it will apply,'" adding, "It is important now to design policy in a way that reflects the ever-changing retail market environment, identifies differences by transaction structure, and minimizes side effects."