Thailand targets SME cash flow with credit and payment reforms

For a small supplier, a delayed payment is more than an accounting inconvenience. It can mean borrowing to pay workers, postponing an order for raw materials or putting off an investment that might help the business compete.

That pressure is spreading across Thailand’s small and medium-sized enterprise (SME) sector, which employs about 13.6 million people — roughly 70% of the workforce — and contributes around 35% of gross domestic product (GDP).

Weak purchasing power, rising costs and tighter liquidity are making it harder for SMEs to sell, operate and secure the working capital they need. Regulators are now turning their attention to two problems at the heart of the squeeze: how quickly large companies pay smaller suppliers and how easily SMEs can obtain loans.

The Trade Competition Commission of Thailand (TCCT) is preparing measures to curb excessive payment delays, while the Bank of Thailand (BOT) is developing new financing tools for SMEs that still have the potential to grow.

The moves come as Thailand prepares for membership of the Organisation for Economic Co-operation and Development (OECD), where free and fair competition is an important part of the accession framework.

When payment delays become a survival test

Under existing TCCT rules, payment terms are capped at 30 days for agricultural suppliers and 45 days for SMEs, calculated from the billing date.

In practice, however, some suppliers delivering goods to large modern-trade retailers have reportedly waited six to eight months to be paid, according to Trade Competition Commissioner Warawan Chitaroon.

The reasons given can sound routine: incomplete documents, lengthy billing procedures or additional accounting checks after invoices have been submitted. For a large company, such delays may be manageable. For a small supplier, they can quickly become a crisis.

With limited cash reserves, an SME may have to borrow simply to keep production moving while waiting for money it has already earned. Some businesses have also reported being offered short-term loans by modern-trade operators during the waiting period.

That may provide immediate liquidity, but it also shifts the cost of the delay to the supplier, leaving SMEs to bear additional interest expenses.

Warawan estimated that unpaid funds tied up in the system could total roughly THB100-200 billion.

A proposed penalty for unjustified delays

The TCCT is seeking clearer limits on how long payments can reasonably be delayed. It has drafted a notification on fair trade practices covering credit terms between large businesses, large wholesale and retail operators, and SMEs.

Under the proposal, businesses could face administrative penalties if evidence shows that payments were delayed without adequate justification. The penalties would be calculated as a percentage of revenue, with the amount determined by the seriousness and impact of the offence.

Companies would still be able to explain the circumstances during the fact-finding process before any penalty was imposed.

The measure would apply specifically to transactions between large and small businesses. For modern-trade operators, the draft defines a large business as one with revenue above THB500 million, while suppliers must meet the relevant SME criteria.

A public hearing on the draft concluded on August 31. The proposal and public comments will return to the commission for consideration and possible revision. If approved as planned, the notification could be signed and published in the Royal Gazette in September, followed by a 30-day adjustment period before enforcement begins.

Warawan said the measure should create a fairer trading environment and help SMEs gain faster access to money already owed to them. More predictable cash flow could reduce borrowing needs, lower financing costs and free up funds for production and product development.

“SMEs are a pillar of Thailand, and there are more than three million of them. If they disappear, purchasing power will weaken further. These businesses play an important role in keeping Thailand’s economy running. If we can help them become stronger, the economy will also improve,” she said.

The other side of the squeeze: access to credit

Even when SMEs need financing, many struggle to obtain it.

BOT data show that SME loan rejection rates may be around 60-70%, with some groups facing much higher rates. Rejection rates reach 78% for new SMEs with no financial track record and 86% for businesses with a history of non-performing loans. In some cases, the actual rate may be close to 90%.

The figures reflect a wider vulnerability in the sector. Of about 130,000 registered SME companies, half are estimated to close within 10 years, while only 30% remain after 25 years.

Younger businesses also appear to be growing more slowly. SMEs established from 2013 onwards saw their revenue index rise from 100 to 127 over 10 years, compared with 175 for earlier generations.

The gap with larger companies is particularly clear in access to credit. Even among the top-performing 30% of businesses, only 21% of SMEs are able to obtain loans, compared with 61% of large firms with a similar level of performance. For newly established SMEs operating for up to five years, the figure is just 11%.

When SMEs do secure loans, they generally pay more. Their average interest rate is about 6.9%, compared with around 3.9% for large companies. Their non-performing loan ratio has risen to about 9-9.5%, against less than 2% among large firms.

The share of so-called zombie firms — businesses whose profits are insufficient to cover interest costs — has also increased from 2% to nearly 6%.

Meanwhile, lending to large businesses has returned to positive growth over the past two to three quarters. The contrast reinforces signs of a K-shaped recovery, in which stronger companies move ahead while weaker businesses continue to struggle.

SME growth has weakened from about 1.9%, when average GDP growth was 3.5%, to around 1%.

Targeting businesses that can still grow

BOT Governor Vitai Ratanakorn has acknowledged that not every SME can be supported.

Some smaller operators lack the capacity to adapt. Others face production costs higher than those of goods imported from China. Resellers are losing market share to online platforms, leaving them with limited prospects even if financing becomes available.

The central bank will therefore focus on SMEs that still have growth potential, estimated to account for around 38% of the sector. Three initiatives are due to begin between late 2026 and 2027.

The first is an SME Credit Portal, scheduled for December. It will allow viable SMEs to register their financing needs and be matched with commercial banks, state-owned banks and non-bank lenders. Chambers of commerce, the SME federation and financial institutions will be involved.

The second is a new credit-guarantee mechanism operating alongside the Thai Credit Guarantee Corporation. It would use about THB20 billion from the Financial Institutions Development Fund. The proposal is expected to be submitted to the finance minister within the next three to four months.

“An initial trial has already supported THB70 billion in lending, with the figure expected to rise to THB80 billion. The longer-term target is around THB100 billion a year,” Vitai said.

“Combined with the Thai Credit Guarantee Corporation, the mechanism could support about THB200 billion in annual SME lending, against estimated total demand of THB400 billion a year.”

The third initiative is a Data Bureau to be developed with the Finance Ministry. It would connect alternative data, including water and electricity payments, tax records, electronic statements, payment-gateway information and mobile-phone usage.

For small businesses and self-employed workers without conventional financial statements, such information could provide a fuller picture of repayment capacity. It could improve their chances of accessing formal credit while helping lenders identify irregular or grey financial transactions.

A race against time

The TCCT and BOT measures address different parts of the same problem.

One seeks to ensure that SMEs receive payment within a reasonable period. The other aims to make it easier for viable businesses to obtain financing. Together, they reflect a recognition that survival depends not only on whether a business can sell, but also on whether it receives its money in time and can borrow on reasonable terms.

For Thailand’s millions of small businesses, the outcome may determine whether today’s cash-flow strain becomes a temporary setback — or the beginning of a much longer decline.