Current legal payment deadline is 60 days; 71% of subcontractors say shortening it would help
60.6% favor 30-day deadline; 18.0% prefer 15 days
25.7% of ordering firms say earlier payments would strain working capital, liquidity
Seven in 10 small and medium-sized enterprises involved in subcontracting say shortening the legal payment deadline for delivered goods — currently set at 60 days — would benefit their operations, a new survey shows. Companies most commonly cited 30 days as the appropriate deadline. However, one in four ordering firms said they would find it difficult to pay earlier, pointing to the need for supplementary measures such as working capital support.
The Korea Federation of SMEs released the findings Wednesday from a survey of 500 SMEs engaged in subcontracting relationships. The survey was conducted from July 21 to July 24. Among subcontracting firms — those that supply goods — 53.7% said they had received payment within 30 days over the past year. Breaking that down, 20.7% were paid within 15 days and 33.0% within 15 to 30 days. Payments taking between 30 and 60 days accounted for 43.6%, while 2.7% waited more than 60 days.
On the ordering side, 62.6% of firms said they paid within 30 days — 19.4% within 15 days and 43.2% between 15 and 30 days. Payments between 30 and 60 days accounted for 36.8%, with 0.6% exceeding 60 days. Under the current Act on Mutually Beneficial Cooperation between Large Enterprises and SMEs and the Subcontracting Act, companies are required to pay for delivered goods within 60 days of receipt. Cumulatively, 97.3% of subcontractors received payment within that window, while 99.4% of ordering firms paid within the same period.
When asked whether shortening the legal payment deadline below 60 days would help their business, 71.0% of subcontractors said it would. Another 19.2% said it would make no difference, while 9.8% said it would not help.
Among firms that said a shorter deadline would be beneficial, the most commonly cited expected benefit was improved cash flow, at 55.3%. Smoother payment to their own suppliers came second at 40.9%, while reduced financing costs such as loan interest and fees was cited by 1.8%.
The survey also found that ordering firms — those required to pay earlier under a shortened deadline — expressed reservations. When asked how burdensome a shorter deadline would be, 41.6% said it would be manageable, 32.7% said it would not be difficult, and 25.7% said it would be hard.
Among ordering firms that said earlier payment would be difficult, 74.1% pointed to deteriorating short-term liquidity and difficulty securing working capital as their main concern. The most commonly cited problematic transaction structure was one in which a buyer or ordering company takes a long time to pay its primary suppliers, cited by 39.4% of respondents. This reflects a potential cash gap in which a firm must pay its downstream suppliers before receiving payment from its own upstream clients. Some 29.2% said no particular transaction structure would pose an outsized burden.
When asked what they considered the appropriate legal payment deadline, 60.6% of all respondents chose 30 days. Another 18.0% chose 15 days, 9.4% chose 45 days, 4.0% chose 40 days, and 3.4% chose 50 days. On the question of how much lead time would be needed before any new rule takes effect, 46.8% said implementation could begin immediately without a grace period. Some 27.0% said six months would be needed, while 22.8% said one year.
The most sought-after policy support measure in the event of a shortened deadline was low-interest working capital loans and expanded credit guarantees, cited by 58.4% of respondents. Shortening the maturity of payment instruments such as trade receivables and promissory notes came second at 24.0%, followed by expanded support for early monetization of receivables through factoring and insurance at 16.2%.
Yang Chan-hoe, executive vice president of the Korea Federation of SMEs, said shortening the payment deadline "is expected to provide practical help in improving business management by boosting SME liquidity and easing cash-flow difficulties." He added, however, that "in some industries where upstream buyers and ordering firms take longer to pay, a timing gap can arise between when payment is received and when it must be made, so it will be necessary to pair the new rule with supplementary measures — such as expanded low-interest working capital loans and credit guarantees — that take into account the transaction structures of each sector."
hong@heraldcorp.com
