Payment and pricing in entrusted business transactions

1. Checking the position when an objection or a claim is received

The first step is to establish what the conduct complained of by the business partner actually is: whether it concerns the setting of the amount due, a reduction in an amount already agreed, a refusal to accept delivery, a return of goods, an instruction to redo work, or a demand that the other side bear costs.

It is not appropriate to classify the conduct by the label the business partner has used. For example, an arrangement described as "taking back defective goods" may be assessed as a return of goods under the legislation, and a payment labeled as a "cooperation fee" or an "adjustment fee" may in substance be treated as a reduction in the amount due. A single arrangement may also engage more than one category of prohibited conduct.

In determining which legislation applies, what is checked is not only the date on which the master agreement was concluded, but also when each individual entrustment was made, whether its content was varied, when the goods or services were accepted, and when payment was made. The fact that the payment date falls after the date the new provisions came into force does not necessarily mean that those provisions apply. Because the transitional provisions are framed by reference to entrustments made before that date, the point of comparison is when each individual entrustment was made, not when the master agreement was concluded.

Contracts and purchase orders, records of specifications and inspections, correspondence about price consultations, invoices and payment records are compared, in order to establish what was agreed and how matters were actually handled. The obligation under the legislation to prepare and retain records and the range of evidence needed to deal with a dispute are not the same thing. Records of how price consultations proceeded may fall outside the statutory retention obligation, yet still determine what can be explained later.

2. Transactions and businesses covered by the legislation

Whether the legislation is engaged depends on the combination of the type of transaction and the size of the parties. Whether your own transactions are covered is checked along these two axes.

The legislation applies by reference to the types of entrustment, such as the entrustment of manufacturing, and to the statutory requirements as to the capital or the number of employees of the entrusting side and the entrusted side. Not every transaction between businesses, and not every outsourcing arrangement, is covered. The requirements for each type of transaction, the size requirements for the entrusting business and the entrusted small or medium-sized business, and the deeming provision for entrustments made through subsidiaries and similar companies are each checked.

The size requirements are set by the combination of the entrusting side and the entrusted side. Even where the combination based on capital is not met, the legislation applies where the combination based on the number of employees is met. The employee thresholds differ according to the type of transaction.

Type of transaction	Entrusting side	Entrusted side
Entrustment of manufacturing, of repair or of specified transportation; entrustment of the creation of information-based products in the form of programs; entrustment of the provision of services consisting of transportation, the storage of goods in a warehouse, or information processing	Capital above 300 million yen, or more than 300 employees	Capital of 300 million yen or less, or 300 employees or fewer
The same types	Capital above 10 million yen and up to 300 million yen, or more than 100 and up to 300 employees	Capital of 10 million yen or less, or 100 employees or fewer
Entrustment of the creation of information-based products and entrustment of the provision of services other than the above	Capital above 50 million yen, or more than 100 employees	Capital of 50 million yen or less, or 100 employees or fewer
The same types	Capital above 10 million yen and up to 50 million yen, or more than 50 and up to 100 employees	Capital of 10 million yen or less, or 50 employees or fewer

The entrustment of the creation of information-based products and the entrustment of the provision of services cannot all be assessed under the same thresholds. Prescribed entrustments relating to the creation of programs, transportation, the storage of goods in a warehouse and information processing fall under the same thresholds as the entrustment of manufacturing and the other types in the first group. The entrusted side includes sole proprietors.

Entrusting another business with the transportation of goods sold in the course of business, to the buyer or to a person designated by the buyer, falls within the entrustment of specified transportation. This is one form of that category; not every entrustment of transportation falls within it. The size requirements for the parties must also be met.

A deeming provision applies where the combination of sizes is not directly met. Where a company subject to a certain degree of control re-entrusts all or a substantial part of work entrusted to it by the controlling company to another business, and the position would be covered by the legislation had the controlling company entrusted that business directly, the legislation applies to that re-entrustment. This is not a provision about entrustments within a corporate group generally, so the relationship of control, the scope of what was re-entrusted, and the combination of sizes of the controlling company and the re-entrusted business are checked.

3. Setting out the terms of the order and payment of the amount due

The matters that must be set out at the ordering stage, and the way the payment date may be set, are each framed by the legislation. The interest payable on late payment is dealt with partly in the Act and partly in the rules of the Japan Fair Trade Commission.

Where an entrusting business makes an entrustment of manufacturing or another covered type of entrustment, it must immediately set out, in writing or by electromagnetic means, the content of the goods or services to be delivered, the amount due, the payment date and the method of payment, together with the other prescribed matters. Where there are matters whose content cannot be determined for justifiable reasons, the reason why the content is not determined and the expected date on which it will be determined are set out at the outset. Once determined, the content must immediately be supplied in a manner that shows its connection with what was originally set out. The specific matters to be set out and the methods to be used are prescribed by the rules of the Japan Fair Trade Commission.

Even where the matters have been set out by electromagnetic means, if the entrusted small or medium-sized business requests a written document, one must be delivered without delay, except where an exception prescribed by the rules of the Japan Fair Trade Commission applies. Having obtained consent to the use of electromagnetic means does not mean that a subsequent request for a written document may be left unanswered.

The payment date must be set within 60 days from the date on which the goods or services are accepted, whether or not an inspection is carried out, and within as short a period as possible. For the entrustment of the provision of services and the entrustment of specified transportation, the date on which the services are received is the reference point. The understanding that the period always runs from the date inspection is completed does not match the legislation. Where no payment date is set, the date of acceptance is deemed to be the payment date; where a payment date is set in breach of the statutory period, the day before the day on which 60 days have passed from the date of acceptance is deemed to be the payment date. This does not mean that a grace period of 60 days is available if no date is set.

An entrusting business is prohibited from failing to pay the amount due for the entrusted work after the payment date has passed, and that prohibition extends to delivering a promissory note for payment of that amount. There is no exception in the legislation for notes maturing on or before the payment date. As to means of payment other than money and promissory notes, those that are difficult to exchange for money equivalent to the amount due by the payment date are covered by the prohibition.

Where an entrusting business has not paid the amount due by the payment date, it must pay interest on the unpaid amount for late payment, calculated for the number of days from the day on which 60 days have passed from the date of acceptance until the day of payment, at the rate prescribed by the rules of the Japan Fair Trade Commission. That rate is 14.6 percent per annum, and is set by a rule of the Japan Fair Trade Commission (Rule No. 9 of 2025) rather than by the Act itself.

The point at which late payment arises and the date from which the statutory interest for late payment runs are checked separately. Where the agreed payment date falls earlier than the day on which 60 days have passed from acceptance, late payment becomes an issue once that agreed date has passed, whereas the statutory interest for late payment accrues from the day on which 60 days have passed from acceptance. Delay damages under the contract and delay damages under the Civil Code are considered separately from this. Interest for late payment where an amount has been reduced is governed by a different provision.

4. Price consultations and unilateral determination of the amount due

Issues about price fall under two sets of provisions: those concerning how consultations are conducted, and those concerning the amount due itself. The two are regulated separately, and the fact that consultations took place does not resolve both.

Where costs relating to the goods or services change or other circumstances arise, and the entrusted small or medium-sized business requests consultations on the amount due, it is prohibited to refuse to engage in those consultations, or to fail to give the necessary explanation or information on the matters raised in them, and to determine the amount unilaterally in a way that unjustly harms the interests of that business. This provision treats the change in costs, the request for consultations, the conduct of the consultations and the explanations given, the unilateral determination, and the unjust harm to the other side's interests as a single whole. A refusal to consult, or a failure to explain, cannot be set out as free-standing prohibited acts.

A request for consultations need not be made in writing. An oral request, or a case where an intention to seek consultations can objectively be recognized, may also be covered. Ignoring a request, or repeatedly putting it off, may likewise be considered. The provision covers not only situations where the amount is being reduced, but also situations where the amount is held at the previous level even though costs have risen. Conduct of this kind does not amount to a breach in itself, however; it is assessed together with the requirements that the determination be unilateral and that the other side's interests be unjustly harmed.

Separately from this, it is prohibited to set unjustly an amount that is strikingly low compared with the consideration ordinarily paid for goods or services of the same or a similar kind. This is the provision on what is known in Japanese practice as "beating down" prices. The guidelines of the Japan Fair Trade Commission state that the assessment is made in the round, taking into account the method by which the amount was determined, including whether sufficient consultations took place; the content of the determination, including whether it was discriminatory; the extent of the divergence from the consideration ordinarily paid; and trends in the prices of raw materials and similar inputs. The assessment is not made on the level of the figure alone, nor is the issue resolved by the fact that consultations took place.

Where a price revision is requested, the content of the request for consultations, the matters on which explanations were sought, your own response, and the course of events up to the decision are recorded. There is no blanket statutory obligation to record every stage of the consultations, but some matters, such as the increase or decrease and the reasons for it where the amount due has been changed, do fall within the matters that the legislation requires to be recorded. Because each of the requirements set out above turns on how events unfolded, whether records remain can determine what can later be established.

The Guidelines on Price Negotiation for Appropriate Pass-through of Labor Costs have been published by the Japan Fair Trade Commission and other bodies. Those guidelines were revised with effect from January 1, 2026, and address matters such as the ordering side setting up regular opportunities for consultation, and the treatment of cases where published materials are used to explain increases in labor costs. The absence of a request from the entrusted small or medium-sized business does not mean that no issue arises under the provision on strikingly low amounts or the other provisions. In addition, transactions outside the scope of this legislation may raise issues of abuse of a superior bargaining position under the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade.

5. Reductions, returns, changes and redoing work

For reductions in the amount due, refusals to accept delivery, returns of goods, changes to the content of the goods or services, and instructions to redo work, each of the relevant provisions includes the requirement that there be no reason attributable to the entrusted small or medium-sized business. Whether there is such a reason, and whether what was done is commensurate with that reason, are checked separately. Some categories, however, do not include this requirement.

An entrusting business is prohibited from reducing the amount due for the entrusted work where there is no reason attributable to the entrusted small or medium-sized business. Even where the reduction is said to be based on a defect in what was delivered, where responsibility lies and what the reduction consists of are both checked. Having a reason does not make any reduction permissible.

A reduction for which there is no attributable reason is not permitted merely because the entrusted small or medium-sized business has agreed to it. Deducting bank transfer fees from the amount due, or applying a reduced new unit price retroactively to orders already placed, likewise cannot be assessed on the basis of agreement alone. Where payment is made using electronically recorded monetary claims or a collective settlement scheme, the practice of making the entrusted small or medium-sized business bear discount charges or settlement fees is treated in the commentary of the Japan Fair Trade Commission as an issue of late payment. It cannot be dealt with together with the deduction of transfer fees as an issue of reduction. Even where the entrusting business bears the discount charges, the use of electronically recorded monetary claims maturing after the payment date is not thereby lawful as a matter of course.

An entrusting business is prohibited from refusing to accept delivery where there is no reason attributable to the entrusted small or medium-sized business. Canceling an order, or postponing the delivery date and not accepting delivery, may also fall within this. It is likewise prohibited to have the other side take back goods that have been accepted. Where the entrustment is one of the provision of services or of specified transportation, these prohibitions relating to acceptance and taking back do not apply.

As to returns of goods, in addition to where responsibility lies and whether what was done is commensurate, the permitted scope is defined by reference to whether an inspection was carried out, the method and standards of inspection, and the period from acceptance until the defect is found and dealt with. Instructions to redo work are considered under a different framework. The periods laid down for returns cannot simply be applied as the periods for redoing work or for claims under civil law.

An entrusting business must not unjustly harm the interests of the entrusted small or medium-sized business by having it change the content of what is delivered, or redo the work after acceptance, where there is no reason attributable to that business. This category includes the requirement of unjust harm to those interests. For the entrustment of the provision of services and the entrustment of specified transportation, it covers having the work redone after the services have been received.

It is also prohibited to harm unjustly the interests of the entrusted small or medium-sized business by having it provide money, services or other economic benefits for one's own benefit. This is not limited to cases taking the form of a deduction from the amount due; requests for contributions to promotional funds or for the secondment of employees may also be covered. This category does not include the requirement that there be no attributable reason.

6. Regulatory breaches and claims under private law

An assessment that the legislation has been breached, and the questions whether a contractual provision is valid under private law and whether a claim for payment or restitution will succeed, need to be considered separately. Neither the view that a breach automatically makes the arrangement void and requires everything paid to be returned, nor the view that administrative regulation has no bearing on questions of private law, is accurate. There are situations in which the assessment under the regulatory regime bears on questions of private law, but how the two relate has to be considered case by case.

Where unpaid amounts are dealt with by way of damages or set-off, the relationship with the prohibition on reductions under the legislation also needs to be checked. It does not follow that, because the set-off is asserted as a matter of private law, no issue arises under the legislation.

Where a settlement is agreed, payment or restitution in respect of orders already placed is kept separate from the terms of future transactions, and the amounts covered, the deadlines for performance and the scope of what is being settled are stated clearly. Signing a settlement agreement does not undo past breaches, and an agreement between the parties cannot bind the assessment made by the authorities.

7. Investigations and recommendations by the Japan Fair Trade Commission and other authorities

Investigations are not directed only at the ordering side. Nor does stopping the conduct in question take a case outside the scope of a recommendation as a matter of course.

The Japan Fair Trade Commission, the Commissioner of the Small and Medium Enterprise Agency and the minister with jurisdiction over the business concerned may each, as provided by law, require an entrusting business or an entrusted small or medium-sized business to make reports, or have their officials enter offices and other premises and inspect books, documents and other items. Guidance and advice may also be given by more than one of these bodies. Recommendations, on the other hand, are made by the Japan Fair Trade Commission. It is not accurate to treat "the authorities" as making recommendations without distinguishing between them.

Where the Japan Fair Trade Commission finds conduct in breach of the matters an entrusting business is required to observe, it is to recommend that the necessary measures be taken, such as payment of the amount due or of an amount that has been reduced. The measures differ according to the category of breach. A recommendation is not a determination that in itself makes a court order for payment or compulsory enforcement available.

Even where the conduct has already ceased, a recommendation may be made where this is found to be particularly necessary. Having corrected the position does not take a case outside the scope as a matter of course.

Penalties are provided for failing to set out the statutory matters, failing to deliver a document when requested, failing to prepare or retain records, preparing false records, failing to make reports or making false reports, and refusing, obstructing or evading an inspection.

8. Correction, record-keeping, measures to prevent recurrence, and how we assist

When correcting the position, the questions that arise are whether interest for late payment is to be added to the amount payable, and whether the statutory records are in order.

Where an entrusting business has reduced the amount due without a reason attributable to the entrusted small or medium-sized business, interest for late payment for the statutory period must also be paid on the amount by which the payment was reduced. In that case the period runs by reference to the date on which the amount was reduced, which differs from the position for late payment. It cannot be said that reduced amounts fall outside the scope of interest for late payment.

An entrusting business must prepare and retain the documents or electromagnetic records prescribed by law concerning what is delivered, its acceptance, payment of the amount due and other matters. The specific items to be recorded and the method of retention are prescribed by the rules of the Japan Fair Trade Commission. The retention period is two years from the day on which all the matters that are required to be recorded have been recorded. It is not a period counted uniformly from the date the order was placed or the date payment was made.

An entrusting business is prohibited from reducing the volume of business, suspending transactions, or otherwise treating the entrusted small or medium-sized business unfavorably, on the ground that it has informed the Japan Fair Trade Commission, the Commissioner of the Small and Medium Enterprise Agency or the minister with jurisdiction of a breach. This provision covers informing those bodies of facts constituting a breach of this legislation, and is a separate mechanism from the protection given under the Whistleblower Protection Act.

We assist, according to the scope of the engagement and depending on the matter, acting for either the entrusting business or the entrusted small or medium-sized business, with checking whether and how the legislation applies, with responding to issues over price consultations and amounts due, and with responses to the authorities and reviews of internal procedures.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Scope of the legislation, matters to be set out, payment dates, prohibited conduct, records, investigations and recommendations	Act Against Delay in Payment of Fees, etc. to Small and Medium-sized Entrusted Business Operators in Manufacturing and Other Specified Fields（製造委託等に係る中小受託事業者に対する代金の支払の遅延等の防止に関する法律）	Japanese legislation / English translation
Matters to be set out, methods of notification, record-keeping, and the rate of interest for late payment	Rules of the Japan Fair Trade Commission, including Japan Fair Trade Commission Rule No. 9 of 2025	Japanese legislation
Assessment of strikingly low amounts; treatment of collective settlement schemes	Guidelines and commentary of the Japan Fair Trade Commission	Official guidance
Price negotiations for passing on labor costs	Guidelines on Price Negotiation for Appropriate Pass-through of Labor Costs（労務費の適切な転嫁のための価格交渉に関する指針）, as revised with effect from January 1, 2026	Official guidance
Abuse of a superior bargaining position in transactions outside the scope of the legislation	Act on Prohibition of Private Monopolization and Maintenance of Fair Trade（私的独占の禁止及び公正取引の確保に関する法律）	Japanese legislation / English translation
Delay damages outside the statutory interest for late payment; set-off	Civil Code（民法）	Japanese legislation / English translation
Protection distinct from the prohibition on unfavorable treatment for informing the authorities	Whistleblower Protection Act（公益通報者保護法）	Japanese legislation / English translation

Legal information reviewed: 2026-09-18

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This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.