Businesses that sell to other businesses (B2B) often choose customers by whatever opportunity arrives: whoever orders first gets the sale. But each customer group has a very different risk pattern. Government customers have strict processes and documents. Large enterprises hold their own contracts and are hard to negotiate with. SME customers pay unpredictably. Overseas customers bring tax and cross-border collection issues.
This guide helps owners compare customer groups: what each needs legally and which questions to ask before deciding to enter that market. It is an overview for choosing a strategy, not tax or accounting advice for a specific case, which you should take up with your accountant or auditor.
The core answer
No customer group is best for every business. Choose the group whose risks match what your business can bear. Government carries document and process risk but few payment defaults. Large enterprises carry the risk of unbalanced contracts and dependence. SMEs carry credit risk. Overseas customers carry tax and cross-border collection risk. Spread across customer groups so that you do not depend on any one.
The rule (Thai law). Sales to government fall under the Public Procurement and Supplies Administration Act B.E. 2560 and its subordinate legislation, including the e-GP system. Private customers are governed by contract and the Civil and Commercial Code. Value added tax is governed by the Revenue Code, under which an export of services may qualify for the zero rate subject to conditions. Customers in regulated industries require you to look at the specific law of their regulator.
Our practical view. Before entering a new group, write three things on paper: who sets the contract, how long it takes to get paid, and what we can do if the customer does not pay. If you cannot answer these three, do not invest more for that group yet.
1. A first comparison before the detail
| Customer group | Strengths | Main legal risks |
|---|---|---|
| Government | Clearly identified payer, rule-based process | Documents and qualifications, security deposits, acceptance, payment period |
| Large enterprises | Volume and continuity | Their contract, low bargaining power, dependence on one |
| SMEs | Quick decisions, negotiable | Credit, debt collection, need for security |
| Overseas | Wide market, income in other currencies | Tax, governing law, cross-border enforcement of judgments |
| Regulated industries | Stable customers with standards | Regulator's requirements, audits, confidential data |
This table is only a broad picture. Some businesses in each group differ.
2. Government customers
Selling to a government agency usually happens through procurement under the Public Procurement and Supplies Administration Act B.E. 2560 and the e-GP system run by the Comptroller General's Department. A seller should understand these concepts before entering this market.
- Registration and qualifications: bidders must have the qualifications and documents the announcements require, and must keep their information in the system up to date.
- Procurement methods: each type of work uses a different method, for example public tender, price inquiry or specific selection. A seller should read the documents and announcement of that project carefully and not conclude from experience of older projects.
- Security: some projects require a bid bond and a performance bond in the form the announcement sets. The seller must prepare liquidity or a bank guarantee facility. For the effect on cash, see Profitable but short of cash.
- Acceptance and payment: money arrives after acceptance through the set procedure. The seller should plan cash flow accordingly.
- Consequences of breach: government contracts usually have penalties and termination rights in a standard form, and the agency's view may affect future bids.
Where small businesses most often slip is conditions and documents that are late or incomplete, not price. Assign a person to be responsible for project documents separately, and do not bid for work you are unsure you can deliver, because a breach may affect bids for future government work.
3. Large enterprise customers
Large enterprise customers give volume and continuity, but the contract is usually theirs. The issues to read are in our guide Checking a large customer's contract before signing, such as payment, acceptance, penalties, liability and one-sided termination.
Issues specific to this group:
- Vendor onboarding usually asks for company documents, due diligence results and compliance documents. It takes a long time, so prepare in advance.
- The customer wants a juristic person. A contractor who is an individual is often asked to set up a company first. See A big client asks you to contract through a company.
- Dependence. A large customer with a high share changes our risk. See Depending on one big customer.
- Long payment terms. The customer may set payment cycles that do not match our own supplier payment cycles.
The advantage to use is that the customer's reputation can help open other markets, and the risk that the customer has no money to pay is usually lower, but that does not mean you will not be deducted from or paid late.
4. SME customers
SME customers decide quickly and will talk terms, but the risk lies in credit.
- Check their status before giving credit: check registration, directors, authorised signatories and payment history. On authorised signatories, see Who can bind your Thai company.
- Start with a deposit or payment in advance. A new customer should start with a small limit and tight terms, then expand once there is a track record.
- Ask for security, for example a guarantor who is a director or shareholder. A guarantee must be in writing and its scope must be clear. For the position of the person asked to guarantee, see Risks of being a guarantor.
- Invoicing and follow-up: issue invoices correctly and on time, and chase systematically. See Unpaid invoices from business customers.
If an SME customer defaults, the cost of recovery is often high compared with the value of the work, so protect yourself before delivery rather than wait to sue afterwards.
5. Overseas customers
Overseas customers open a wide market and may pay in foreign currency, but they add points you need to plan for.
- Value added tax. Exports of goods and some kinds of services may be taxed at the zero rate under the Revenue Code, subject to conditions such as where the service is used and supporting documents. See Exporting services and zero-rated VAT, and check with your accountant or the Revenue Department for your case.
- Withholding tax abroad. The customer's country may withhold tax before paying. Include it in your quotation and check the tax treaty.
- Governing law and courts. The contract should state the governing law and the method of resolving disputes, such as arbitration, because cross-border enforcement of judgments is troublesome.
- How you are paid. Advance payment or a letter of credit reduces collection risk.
- Language and evidence. Keep the contract, purchase orders and evidence of service in full, since they are used to prove your rights both for tax and for claiming payment.
Tax rules have many details. Do not set prices or conclude your tax status from a general article. Check with your accountant before you issue the first invoice.
6. Customers in regulated industries
Customers that are financial institutions, insurers, health providers, food and drug businesses or providers of critical infrastructure come under regulators with their own requirements, which pass down to the seller through the contract.
- Supplier audits: the customer may ask for the right to inspect our premises, documents or processes.
- Personal data and confidential information: a seller with access to data usually has to sign a data processing agreement and security measures.
- Licences and standards: the seller may need specific licences or certification.
- Subcontracting: the contract often limits the use of subcontractors.
- Termination rights and incident reporting: usually stricter than in a general contract.
This group takes a long time to prepare for, but once you are through, the relationship is usually stable. Ask for the full list of requirements before you quote, and ask an expert in that industry when the requirements are beyond what we know.
7. Matching customer groups to your business
Ask yourself these questions.
- How long can our cash hold while we wait to be paid? If it is short, slow-paying customers are not suitable.
- Do we have people to handle a lot of documents? If not, government and regulated customers will be a burden.
- Do we want many small customers or a few large ones? This affects dependence risk.
- Is our product or service tied to any standard or licence?
- Can we accept the customer's contract, or must we use our own?
- Do we have a collection method that suits that group, such as security or advance payment?
Businesses that grow well often mix two or three groups: for example one or two enterprise customers for continuity, many SME customers for profit per transaction, and overseas customers to spread risk. For spreading risk without breaching a contract, see Depending on one big customer.
8. Contracts should differ by group
- Government: use the contract form and conditions the agency sets. The seller can hardly negotiate, so read them before you bid.
- Large enterprises: negotiate only the important points, such as payment, liability and termination.
- SMEs: use our own concise standard contract with a deposit, default interest and a guarantor.
- Overseas: state the governing law, the court or arbitration, the currency and who bears tax.
- Regulated industries: prepare annexes on data, security and audits.
For continuing services, a master agreement and a service level agreement (SLA) are forms used with many groups. See MSA and SLA for monthly service contracts.
9. Checklist before entering a new customer group
- You have written down who sets the contract and which terms you can negotiate
- You have estimated how long it takes to be paid and your liquidity can cover it
- Government: read the project documents, checked qualifications and prepared security before you bid
- Large enterprises: prepared vendor onboarding documents and reviewed the contract
- SMEs: checked the customer's status and set a deposit or security
- Overseas: checked tax status with your accountant, and stated the governing law and how you will be paid
- Regulated industries: asked for the regulator's requirements and checked that you can comply
- You have a plan to spread customer groups so that you do not depend on one group or one customer
Further reading
- Depending on one big customer — dependence risk and protective contract terms
- Checking a large customer's contract before signing — terms to read when the customer is a large enterprise
- A big client asks you to contract through a company — when the customer wants a juristic person as counterparty
- Unpaid invoices from business customers — following up and demanding payment
- Exporting services and zero-rated VAT — for overseas customers
- Risks of being a guarantor — when personal security is requested
Different customer groups carry different risks, so choose the groups whose risk your business can bear, and do not depend on any one group.
We help businesses review contracts with each customer group, prepare the business's standard contracts, and pursue payment when customers default. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and documents and demand letters.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
