Complying with the Torihiki Tekiseika Act: Internal Practices Ordering Companies Should Review After It Took Effect

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

On January 1, 2026, the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (the Subcontract Act) was revised into the "Act on Prevention of Delay in Payment, etc. of Proceeds to Small and Medium-sized Entrusted Business Operators Relating to Manufacturing Consignment, etc." (commonly known as the Act on Ensuring Proper Transactions with Small and Medium-sized Entrustees, or the Torihiki Tekiseika Act). This is not merely a change of name: the Act incorporates new rules concerning the scope of covered transactions, means of payment and the process of consultation when setting prices. For ordering companies, transactions they previously regarded as outside the scope of the Subcontract Act may newly become subject to regulation, so a review of internal practices is needed.

An Employee-Count Test Added to the Capital Test

The former Subcontract Act determined whether it applied based solely on the amount of capital of both the ordering party and the receiving party. Under the Torihiki Tekiseika Act, a test based on the number of employees has been added to this capital test.

According to materials published by the Japan Fair Trade Commission and the Small and Medium Enterprise Agency, the following thresholds are set for each transaction category. For "manufacturing consignment," "repair consignment" and "specified transportation consignment," and for transactions within "information-based product creation consignment" and "service provision consignment" that involve creating programs, transportation, warehouse storage of goods or information processing, the Act applies where the entrusting party has capital of more than JPY 300 million and the entrusted party has capital of JPY 300 million or less, or where the entrusting party has more than 300 employees and the entrusted party has 300 or fewer employees.

For other "information-based product creation consignment" and "service provision consignment," including advertising production, consulting and marketing support, the Act applies where the entrusting party has capital of more than JPY 50 million and the entrusted party has capital of JPY 50 million or less, or where the entrusting party has more than 100 employees and the entrusted party has 100 or fewer employees.

Because the Act applies if either the capital test or the employee-count test is met, even a company that keeps its capital at JPY 10 million or less is an entrusting business operator for information-based product creation consignment and similar transactions with business partners that have 100 or fewer employees, if it has more than 100 employees. Companies that have concluded the Act does not apply based on capital alone need to make a fresh determination that includes the number of employees.

Prohibition on Payment by Promissory Notes and Changes to Means of Payment

The Torihiki Tekiseika Act also introduces new regulations on means of payment. The published materials expressly state a "prohibition on payment by promissory notes, etc.," and in addition to promissory notes, means of payment such as electronically recorded monetary claims are prohibited where it is difficult to obtain the full amount equivalent to the price by the payment due date.

The obligation to set a payment due date within a short period, no later than 60 days from the date the ordered goods or the like are received, is maintained, but the Torihiki Tekiseika Act requires the use of means by which the entrusted business operator can substantively receive the full amount by the due date. Payment terms premised on promissory notes, and practices that make the entrusted party bear discount fees or charges, directly fall within the prohibited conduct. Companies that used promissory notes or electronically recorded monetary claims with long payment terms should check whether, for orders placed on or after January 1, 2026, they have switched to payment methods under which the full amount equivalent to the price can be received by the payment due date.

Prohibition on Unilaterally Setting Prices and the Rules on Price Reductions and Late Interest

Among the newly established prohibited acts is "unilaterally setting prices without responding to consultation." This refers to unilaterally setting the price by failing to respond to consultation or failing to provide the necessary explanation, despite a request for price consultation from a small or medium-sized entrusted business operator.

Refusing consultation itself in response to requests for price increases due to rising raw material, energy or labor costs, on grounds such as budget constraints, can constitute this prohibited act. It is important to put in place a practice in which, when a request for consultation is received, it is not turned down by frontline staff on their own but is put through the internal approval process, with a record kept of the course of negotiations.

In addition, the existing obligations and prohibitions continue to apply. Reducing the price after an order has been placed when the entrusted business operator is not at fault is prohibited, and unilaterally deducting bank transfer fees can also constitute a reduction. Late interest when payment is delayed is set at an annual rate of 14.6%. If internal inspection work stalls and 60 days pass from the date of receipt, the obligation to pay late interest arises, so it is important to manage the date of receipt and the date of inspection strictly.

Electronic Disclosure of Order Details and the Obligation to Retain Documents

The obligation to disclose order details has also been partially revised. Regarding the obligation to specify the content of the deliverables, the amount of the price, the payment due date, the method of payment and other matters in writing or by email or similar means when placing an order, the Torihiki Tekiseika Act now allows electronic methods to be used even without the prior consent of the small or medium-sized entrusted business operator.

The obligation to keep transaction records as documents or electromagnetic records for two years (the so-called obligation to retain the subcontracting ledger) also continues to apply. Where orders are completed solely through business chat tools or email, it is important to check whether the required statutory particulars are all present and whether the records are stored in a state in which their content can be restored and presented for two years.