Executive Summary/ Key Questions

• Q1 What is the "Payment Notification"? How does it differ from the "Subcontracting Transaction Optimization Act" (the "Optimization Act") enacted in January 2026?
  ー The "Payment Notification" is a regulation under the Antimonopoly Act (Antitrust Law) that broadly enforces the "60-day rule" on transactions where the payor holds a superior bargaining position, even if the transaction falls outside the scope of the Optimization Act's formal size thresholds (capital/employee criteria).
  ・Purpose：It aims to improve cash flow and ensure fair transactions across the entire supply chain. It is scheduled to take effect on April 1, 2027.
  ・Key Difference (Criteria): While the Optimization Act determines applicability based on formal/quantitative criteria (capital size and number of employees), the Payment Notification has no such formal criteria. Instead, it judges applicability based on substantive criteria—specifically, whether the receiving enterprise's position is inferior to that of the commissioning enterprise.
  ・Key Difference (Payment Methods): Under the Optimization Act, there are restrictions such as the "prohibition of payment by promissory notes" and a limitation stating that the use of electronically recorded monetary claims is "not permitted if it is difficult to convert into cash by the payment due date." The Payment Notification does not impose these specific restrictions (although, regarding the use of promissory notes, efforts are currently underway to phase them out by the end of fiscal year 2026).
  
• Q2 When paying via electronically recorded monetary claims or factoring, is it a violation if the maturity date exceeds 60 days, or if the receiving enterprise bears the fees?
  ーEven if the maturity date exceeds 60 days, it does not immediately constitute a violation of the Payment Notification as long as the receiving enterprise is enabled to receive payment from a financial institution within the 60-day period. However, imposing an unfair burden may raise issues as an "abuse of superior bargaining position."
  ・ Cash Conversion Requirement: Within 60 days of receiving the deliverables, the payor must enable the receiving enterprise to obtain payment from financial institutions through means such as electronically recorded monetary claims or factoring. It is not strictly required that the actual cash receipt by the receiving enterprise be fully completed within those 60 days.
  ・ Bearing of Fees: The receiving enterprise bearing discount fees or handling charges to convert claims into cash on the payment date does not inherently violate the Payment Notification. However, forcing the receiving enterprise to bear unreasonably high discount fees could constitute an Abuse of Superior Bargaining Position under the Antimonopoly Act.
  
• Q3 Can payments exceeding 60 days from delivery be justified under "justifiable grounds" due to reasons like "administrative/invoicing procedures" or "inspection waiting periods"?
  ー Mere "administrative convenience for invoice processing" is not recognized as a justifiable ground. However, periods required for "precise inspections" may be accepted as reasonable. Crucially, any such exception requires a "substantive agreement" with the receiving enterprise.
  ・ Unacceptable Examples: Mere administrative convenience for invoice processing, traditional contracting customs, or manufacturing commissions based on business models with long-term investment recovery periods.
  ・ Acceptable Examples: Allowing for a period necessary to conduct precise inspections to verify the quality of information deliverables, or setting the "date of notice receipt" as the baseline when a notice from the receiving enterprise is required to calculate payments (e.g., for direct delivery to third parties, actual hours worked, or exchange rate adjustments).
  ・ Procedural Requirements: To apply these exceptions, a "substantive agreement" must be reached after explaining the reasons to the receiving enterprise. However, if common payment terms are established for continuous transactions, individual negotiations for every single order are not required unless the terms change.
• Q4 If an order is placed with a large enterprise that is equal to or larger than our company, can we assume that the Payment Notification does not apply (i.e., our position is not superior)?
  ー No. Even if the receiving enterprise's business scale is equal to or larger than yours, you cannot automatically assume that the Payment Notification does not apply.
  ・ Comprehensive Assessment Criteria: Transactional positions are evaluated comprehensively based on: (1) the receiving enterprise's degree of transaction dependence on your company, (2) your market position, (3) the possibility of the receiving enterprise changing its business partners, and (4) other specific facts demonstrating the necessity of trading with your company.
  ・ When the Subcontractor is Smaller: If the receiving enterprise's business scale is smaller than the payor’s, it is generally presumed that the payor is leveraging its transactional position to impose a burden if payment is not made within 60 days, making them a protected entity unless exceptional circumstances exist.
  ・ When the Subcontractor is Equal/Larger: Even if their business scale is equal or larger, they may still be deemed to be in a subordinate position if their dependence on your company is high or if trading with your company is highly critical for them. Assessments may also need to be made based on the balance of power or dependence within specific business sectors or operating branches.