Japan Payment Terms: Shimekiri, Tegata, and the 2026 Reforms

Japan's B2B payment system operates on conventions that have no direct equivalent in Western commerce. Where most international suppliers expect straightforward Net 30 or Net 60 terms counted from the invoice date, Japanese companies structure their payments around shimekiri (締め切り), a fixed closing-date cycle in which buyer and seller agree on specific cutoff dates and corresponding payment dates before a single transaction takes place. Invoices are not paid individually on their own timeline. Instead, all charges accumulated by the closing date are batched and settled on a predetermined payment date, often 30 to 60 days later.

For decades, a significant share of these settlements arrived not as cash but as tegata (手形), promissory notes that could defer actual payment by another 90 to 120 days beyond the already-extended billing cycle. The practice was so embedded in Japanese commerce that small subcontractors routinely waited four to six months for payment on completed work, bearing the full cost of financing in the interim.

That changed on January 1, 2026. Under amendments to Japan's Subcontract Act (下請法), tegata are now prohibited for subcontracting transactions, and parent companies must pay subcontractors in full cash within 60 days of receiving goods or services. Violations carry a penalty rate of 14.6% per annum on the overdue amount. These reforms represent the most significant restructuring of Japan payment terms in decades, yet English-language coverage remains sparse, leaving foreign finance teams and procurement departments to piece together the implications from fragmented sources.

Three interconnected elements define how money moves in Japanese B2B relationships: the shimekiri billing cycle that determines when invoices are grouped and due, the shift from paper tegata to the electronic densai system that determines how payment is transmitted, and the Subcontract Act framework that sets the legal boundaries for how long a buyer can take to pay. Understanding all three is essential for any company doing business with Japanese suppliers, negotiating contracts with Japanese buyers, or managing accounts payable across Japanese operations.

How Japan's Shimekiri Billing Cycle Works

If you're accustomed to Net 30 or Net 60 terms, the shimekiri (締め切り) system will require a fundamental shift in how you think about payment timing. Rather than starting a countdown from the date an invoice is issued, Japanese B2B payments revolve around two predetermined dates agreed upon before any transactions take place: a closing date (shimekiri) and a payment due date (shiharai kijitsu).

In a Net 30 arrangement, each invoice carries its own due date calculated from the invoice date. Every delivery triggers its own payment clock. The shimekiri system works differently: the payment date is fixed by calendar convention, and all transactions within a billing cycle are batched together into a single payment on that date.

Common Shimekiri Patterns

Three closing-date patterns cover the vast majority of Japanese B2B arrangements:

Month-end closing, payment end of next month — the most widely used pattern. All transactions through the last day of the month are invoiced together, with payment due on the final day of the following month.
20th closing, payment end of following month — transactions accumulate through the 20th, with payment due at the end of the next month.
15th closing, payment 25th of following month — transactions through the 15th are batched, with payment falling on the 25th of the following month.

In each case, the invoice date typically aligns with the customer's closing date, not the date goods were delivered or services rendered.

How Transaction Aggregation Works

Under the shimekiri system, transactions accumulate from the day after the previous closing date through the current closing date. Everything that falls within that window goes onto a single invoice, regardless of how many individual deliveries, services, or purchase orders were involved.

Consider a concrete example. Your company has agreed to a 20th closing date with payment at end of next month. You deliver a service on June 1 and another on June 19. Both fall within the same billing cycle (May 21 through June 20), so both appear on the invoice dated June 20. Both are paid on July 31. The first service waits 60 days for payment; the second waits 42 days. Same invoice, same payment date, but the actual days-to-payment vary depending on where each transaction landed within the cycle.

This variability is inherent to the system. Unlike Net terms, where the gap between delivery and payment is contractually fixed, the shimekiri billing cycle creates a range of effective payment periods determined by when work falls relative to the closing date. For longer months or transactions delivered early in a cycle, the wait can stretch considerably.

Why This Matters for Your AP and AR Teams

If your finance team processes invoices from Japanese suppliers using Western assumptions, timing mismatches are almost guaranteed. You won't receive one invoice per delivery with its own due date. You'll receive a consolidated invoice on the closing date covering everything since the last cycle, with a payment date that was established when the trading relationship began.

For contract negotiations, this means the shimekiri and payment date are set at the start of the business relationship, not renegotiated per transaction. When no shimekiri is specified in the contract, the default payment term under Japanese commercial practice is 15 days from receipt of invoice, though this default is rarely seen in practice between established trading partners.

Tegata: The Promissory Note System Behind Japanese Commerce

A yakusoku tegata (約束手形) is a promissory note — a physical paper document issued by a buyer that commits to paying a specified amount on a fixed future date. Unlike a bank transfer that settles within days, a tegata functions as a formal IOU: the buyer hands the supplier a piece of paper that says, in effect, "We will pay you ¥X on this date, drawn from this bank account." For decades, tegata served as a defining instrument of Japanese B2B commerce.

What made tegata distinctive was the length of the payment horizon. Standard tegata carried maturity periods of 90 to 120 days from the date of issue. Critically, this timeline began after the shimekiri closing and invoicing cycle had already run its course. A supplier who shipped goods in early March might see the transaction land in the March 31 shimekiri cycle, receive a tegata in late April, and wait until July or August for actual cash. Total elapsed time from delivery to payment could stretch well beyond 150 days.

Why Tegata Became Central to Japanese Commerce

Tegata persisted for so long because they solved a real problem for both sides of the transaction. For buyers, issuing a tegata was a form of interest-free credit extension. The buyer retained cash for an additional 90 to 120 days beyond what a standard bank transfer would require, freeing up working capital without negotiating a formal loan.

For suppliers, tegata were not simply a burden to endure. A supplier holding a tegata had two options. The first was straightforward: hold the note until its maturity date and present it to the issuing bank for the full face value. The second option was bank discounting — taking the tegata to a financial institution before maturity and selling it at a discount. The bank would purchase the note for less than its face value (deducting what amounted to an interest charge), giving the supplier immediate cash. This created a form of short-term trade finance and generated an active secondary market for commercial paper across Japan's banking sector.

This dual function — credit extension for buyers, liquidity access for suppliers — became deeply embedded in Japanese business relationships. Tegata were not merely a payment method but an embedded commercial norm. Within Japan's keiretsu (interconnected corporate groups), tegata terms often reflected the power differential between anchor companies and their smaller suppliers, with longer maturities imposed further down the supply chain.

The Hidden Costs of Paper

The commercial logic of tegata, however, came with significant operational friction. These were physical paper instruments — printed, stamped, signed, mailed, stored, and presented in person at bank counters. Every step in the lifecycle of a tegata introduced risk. Notes could be lost in transit, damaged, stolen, or forged. A misplaced tegata was not a minor administrative inconvenience; it represented a legally binding payment obligation that could not simply be reissued without complex procedures.

For businesses handling dozens or hundreds of tegata each month, the administrative burden was substantial. Staff dedicated time to tracking maturity dates, managing physical storage, coordinating bank presentations, and reconciling discounted notes against accounts receivable. The overhead scaled poorly, and the paper-based nature of the system made it resistant to the kind of automation that was transforming other areas of financial operations.

Taken together, tegata added a layer of cost, delay, and risk on top of Japan's already structured shimekiri billing cycle — extending payment timelines, demanding manual handling, and exposing both parties to operational hazards that had no equivalent in electronic payment systems.

Why Japan Abolished Tegata in 2026

The amended Subcontract Act (下請法), passed by Japan's Diet in May 2025 and effective January 1, 2026, prohibits payment by promissory note in subcontracting relationships. This is the most significant change to Japan's commercial payment system since the original Act was established in 1956. After decades of incremental pressure to shorten payment cycles, the government moved to eliminate the instrument that enabled the longest delays.

The Japan Fair Trade Commission (JFTC / 公正取引委員会), which oversees and enforces the Subcontract Act, had signaled this direction for years. JFTC guidance had already discouraged tegata with maturities exceeding 60 days, but compliance was uneven and enforcement relied heavily on administrative guidance rather than outright prohibition. The 2026 amendment removed ambiguity: promissory notes are no longer a permissible payment method from parent companies to their subcontractors.

The Subcontract Act's scope is broad. It covers parent-subcontractor relationships defined by capital size thresholds and applies across four categories of outsourced work:

Manufacturing outsourcing
Repair outsourcing
Information-based product creation outsourcing (software, content, design)
Service outsourcing

Any parent company meeting the capital threshold that pays a subcontractor via tegata after January 2026 is in violation, regardless of the note's maturity period.

The legal prohibition did not occur in isolation. Japan's three megabanks — MUFG, SMBC, and Mizuho — announced plans to terminate issuance of paper bills and checks by the end of fiscal year 2025 (March 2026). This parallel institutional action means the banking infrastructure for paper instruments is being dismantled alongside the legal framework. Even transactions outside the Subcontract Act's jurisdiction face practical barriers to continued tegata use as banks wind down processing capabilities.

These coordinated moves reflect the Japanese government's broader stated goal: abolish promissory notes and paper checks entirely by 2026, not limited to subcontracting relationships. The JFTC's legal prohibition addresses the most exploitative use case, while the megabanks' withdrawal of services pressures the remaining market toward electronic alternatives.

Densai: Japan's Electronic Replacement for Promissory Notes

Densai (電子記録債権, electronically recorded monetary claims) are digital payment instruments created under Japan's Electronically Recorded Monetary Claims Act, which took effect in December 2008. Unlike tegata, which required physical paper handling, densai exist entirely as electronic records. They have operated alongside traditional promissory notes for over fifteen years, but with tegata's abolition, densai now serve as the primary successor instrument for B2B trade credit in Japan.

The system runs through Densai Net (全銀電子債権ネットワーク, Zengin Electronic Credit Network), a centralized electronic platform that records the creation, transfer, and settlement of monetary claims. When a payer issues a densai, the claim is registered on this platform rather than printed on paper. Settlement occurs automatically through the banking system on the designated date, removing the manual presentation and clearing steps that tegata required.

Densai replicate the core commercial functions of promissory notes while eliminating their operational hazards. The advantages are straightforward:

No physical documents to lose, steal, or forge
Claims can be split into smaller denominations, allowing a supplier to assign partial amounts to different creditors
Transfer to third parties is recorded electronically, creating a clear chain of ownership
Claims can be pledged as collateral for financing, preserving the working capital function that made tegata attractive to smaller firms

Adoption has been substantial. Surveys indicate that approximately 75% of businesses intended to use electronically recorded monetary claims as an alternative to traditional instruments, reflecting broad acceptance of the digital format across Japanese industry.

However, densai under the 2026 regulatory framework are not simply a digital copy of old tegata practices. The amended Subcontract Act restricts densai usage in the same way it restricts other non-cash payment methods: densai is prohibited as a payment method to subcontractors if it would be "difficult to obtain the full amount by the due date." In practical terms, this means a parent company cannot issue a densai with a 120-day maturity to a subcontractor and call it compliance. The instrument itself is permitted, but the extended payment windows that tegata once enabled are not.

For foreign businesses, the practical implication is straightforward: if your Japanese buyer proposes payment via densai rather than bank transfer, you are receiving the functional equivalent of a digital promissory note. The key question is the maturity date. Under the 2026 rules, densai cannot extend beyond the 60-day ceiling for subcontracting relationships. Densai is the technological replacement for tegata's infrastructure, but the 2026 reforms constrain how it can be used, pushing the entire system toward direct cash payment within 60 days rather than accepting a digital version of the old delay mechanism.

The 60-Day Payment Rule Under Japan's Subcontract Act

Japan's Subcontract Act (下請法) imposes a hard legal deadline on payments from parent companies to subcontractors: payment must be made within 60 days of receiving the goods or services. This is not a recommended best practice or an industry guideline. It is a statutory obligation enforced by the Japan Fair Trade Commission, and the clock starts ticking the moment the parent company takes delivery.

When a parent company misses the 60-day deadline, a penalty interest rate of 14.6% per annum kicks in automatically. Interest accrues from the day after the deadline expires, and the parent company has no discretion to negotiate it away. The rate is deliberately punitive. For context, Japan's general statutory commercial interest rate stands at 3% per annum, set under Article 404 of the Civil Code and reviewed every three years (most recently in April 2023). The nearly fivefold multiplier reflects a clear legislative intent: larger companies should not treat smaller subcontractors as a source of cheap working capital by sitting on invoices.

This asymmetric penalty structure is not unique to Japan. The United Kingdom takes a similar philosophical approach, using above-market statutory interest rates to discourage large buyers from delaying payments to smaller suppliers. A comparison with how the UK's statutory late payment interest framework works reveals that both countries have concluded that market-rate interest alone provides insufficient deterrent. Japan's 14.6% rate, however, is significantly more aggressive than the UK equivalent, signaling how seriously Japanese regulators view the power imbalance in subcontracting relationships.

Despite this structured legal framework, payment delays remain a persistent reality in Japanese commerce. According to the Atradius Payment Practices Barometer for Japan, 45% of B2B credit sales in Japan are affected by overdue invoices, with overdue payments settling more than one month past due on average and bad debts averaging 6% of all B2B invoices. Japan's shimekiri system and formalized billing culture do support predictable payment timing in many cases, but the gap between agreed terms and actual payment behavior is exactly what motivated the government to strengthen enforcement through the 2026 reforms.

One important distinction: the 60-day rule applies specifically to parent-subcontractor relationships that fall within the Subcontract Act's scope. Between commercial equals operating outside that scope, Japanese law imposes no general statutory time limit for paying invoices. Parties are free to negotiate whatever payment terms they agree on, and the 3% statutory rate applies only when no other rate is specified. The protective framework exists precisely because subcontractors, by definition, lack the bargaining power to enforce favorable terms on their own.

How the 2026 Reforms Reshape Construction Industry Payments

Japan's construction sector operates on a deeply layered subcontracting model. A general contractor awarded a public works or commercial building project will typically subcontract portions of the work to first-tier specialty firms, who in turn subcontract to second-tier contractors, and so on through three, four, or even five levels. Each tier creates a separate contractual relationship and a separate payment obligation. This structure made construction the industry where tegata usage was most entrenched and where payment delays compounded most severely.

Under the old system, a general contractor might issue tegata to its first-tier subcontractor with a 120-day maturity. That subcontractor, waiting on payment, would issue its own tegata to second-tier firms on similar terms. By the time cash reached the smallest contractors at the bottom of the chain, six months or more could pass from the date work was completed. The 2026 reforms apply the 60-day payment rule at every tier of the subcontracting chain, creating a cascading effect that compresses the entire payment timeline. Where tegata previously added 90 to 120 days of delay at each level, every subcontracting relationship must now settle in cash within 60 days of the billing closing date.

The Construction Business Act (建設業法) provides the regulatory framework specific to this industry. The Act requires all construction businesses to hold appropriate licenses and mandates that subcontracts contain written agreements covering 12 specified items, including scope of work, payment terms, and dispute resolution procedures. It also prohibits "blanket subcontracting" (丸投げ), where a contractor subcontracts an entire project without performing any substantive work itself. These existing requirements now intersect with the Subcontract Act amendments: a general contractor cannot simply pass payment delay down the chain by restructuring contractual relationships, because the Construction Business Act already constrains how subcontracting relationships are structured.

For foreign firms entering Japanese construction through joint ventures or as subcontractors to major general contractors, the practical consequence is straightforward. Payment terms in any subcontract agreement should reflect the 60-day maximum, and contracts proposing longer terms or tegata-based payment are no longer compliant. Finance teams should model cash flow based on the shimekiri cycle of their contracting partner, adding no more than 60 days from the relevant closing date.

Japan is not alone in addressing construction payment chain issues through legislation. Similar protections exist in other Asia-Pacific markets. Singapore's construction payment claim protections under SOPA address comparable problems in multi-tier subcontracting, with statutory adjudication mechanisms that allow subcontractors to recover payment without litigation. Both countries have enacted targeted legislation to curb payment delays in construction supply chains, though Japan's approach centers on prohibiting specific payment instruments and capping payment periods, while Singapore's framework emphasizes rapid dispute resolution and progress payment rights.

What Foreign Businesses Should Know About Japanese Payment Terms

The single most common mistake foreign companies make when entering the Japanese market is starting business before agreeing on shimekiri terms. Because Japan's payment system is calendar-driven rather than invoice-driven, sending an invoice does not start a payment clock. Payment timing is determined by the closing date and payment date your Japanese counterparty uses — and if you have not negotiated these dates explicitly, your first invoice may sit unpaid for months while both sides assume different timelines.

Before signing a contract or accepting a purchase order from a Japanese company, confirm two dates: the shimekiri date (締め日) and the payment date (支払日). These appear on most Japanese purchase orders and commercial contracts. A clause reading "月末締め翌月末払い" means end-of-month closing with payment at the end of the following month. If the proposed cycle creates cash flow problems, negotiate during the contract phase — not after invoices are outstanding. Japanese companies will often accommodate shorter cycles for foreign suppliers, but only if the request comes before the business relationship is formalized.

Japan's Payment Culture in Practice

Japan's B2B payment culture is, by global standards, formalized and dependable. Payments on agreed terms average around 30 days, and roughly one in five transactions are paid in advance. The rate of unpaid invoices is low compared to most major economies. Japanese companies overwhelmingly pay on the agreed date rather than treating due dates as aspirational targets. Payment delays, when they occur, tend to stem from the structural mechanics of the shimekiri cycle and banking holidays rather than deliberate cash management tactics.

That said, days sales outstanding (DSO) across all factors averages 69 days when accounting for the full shimekiri cycle, processing lags, and banking holidays. The gap between the 30-day contractual norm and the 69-day practical reality is not a sign of bad faith — it reflects the structural mechanics of the shimekiri system itself. An invoice submitted the day after a closing date waits a full cycle before it even enters the payment queue.

When Payment Collection Goes Wrong

Despite the generally reliable payment culture, Japan is listed among countries with high payment collection complexity. If a Japanese counterparty fails to pay, the path to resolution is neither quick nor cheap.

Court proceedings in Japan are time-consuming, procedurally demanding, and expensive relative to the amounts typically in dispute in B2B transactions. Litigation should be treated as a last resort, not a credible early-stage threat. Pre-legal collection actions carry far more practical weight: structured demand letters via content-certified mail (内容証明郵便), direct negotiation through a Japanese intermediary, and formal payment demands through legal counsel. Content-certified mail is a postal service that creates a legally recognized record of the letter's contents and delivery date, functioning as formal evidence that the debtor was notified and strengthening any subsequent legal claim. These steps resolve the majority of disputes before they reach a courtroom. Insolvency proceedings, when they become necessary, can eventually yield dividends to creditors — but the process takes years.

How the 2026 Reforms Affect Foreign Companies

The 2026 regulatory changes create obligations that apply based on the structure of the business relationship, not the nationality of the parties involved.

If your company operates as a parent contractor engaging Japanese subcontractors, the amended Subcontract Act's 60-day payment rule applies to you. Tegata and other long-dated instruments are prohibited for subcontractor payments, and cash payment within 60 days of delivery is mandatory. Non-compliance exposes your company to administrative orders from the Japan Fair Trade Commission, regardless of where your headquarters is located.

If your company operates as a supplier to Japanese buyers, the reforms work in your favor. Expect your Japanese counterparty to propose payment within a standard shimekiri cycle — typically 30 to 60 days. If the proposed terms extend beyond 60 days, or if a buyer suggests payment by promissory note, you now have regulatory backing to push back. The Subcontract Act amendments give suppliers explicit grounds to reject payment terms that exceed the statutory ceiling. If the transfer amount is also reduced by a deduction shown as gensen choshu, use this guide to Japan withholding tax on invoices to confirm whether you are looking at legitimate source-tax withholding rather than a payment-timing issue.

For companies on either side of the relationship, the practical step is the same: review existing contracts and purchase orders for shimekiri dates and payment instruments. Any terms referencing tegata or specifying payment beyond 60 days from delivery are no longer compliant and need immediate renegotiation.