[Korea Federation of SMEs]
[Korea Federation of SMEs]

Korea Federation of SMEs hosts forum on shortening payment deadlines

Average payment period over past 3 years: 27.4 days; 66% paid within 30 days

Corrugated cardboard industry warns of up to 90-day waits; calls for low-interest financing

South Korea's small and medium-sized enterprise community is calling for the statutory deadline for settling supplier payments to be cut in half — from 60 days to 30 — arguing that actual business practice already aligns with the shorter timeframe, with roughly two-thirds of payments already made within 30 days.

The Korea Federation of SMEs said Thursday it held a forum at its Yeouido headquarters in Seoul to discuss ways to shorten the legal payment deadline for supplier invoices from 60 days to 30.

Under the current Act on the Promotion of Mutually Beneficial Cooperation Between Large Enterprises and Small and Medium Enterprises, ordering companies are required to set a payment date within the shortest period possible, not exceeding 60 days from the date of delivery. If no payment date is set, or if one is set beyond 60 days, the deadline automatically falls 60 days after delivery.

Oh Ki-woong, standing vice chairman of the Korea Federation of SMEs, said small businesses must front production costs such as raw materials and then wait a considerable time before receiving payment. "Since 78.6 percent of companies surveyed identified 30 days or less as the appropriate payment deadline, the statutory limit needs to be shortened to reflect what is actually happening on the ground," he said.

A survey the federation released last month also found that seven in 10 small and medium-sized enterprises believed a shorter payment deadline would benefit their operations.

Baek Hun, a researcher at the Korea Institute for Small and Medium Enterprises and Startups who presented at the forum, said an analysis of corporate transaction data showed the average payment period over the past three years was 27.4 days, with 66 percent of payments settled within 30 days. The gap between the legally permitted maximum of 60 days and actual business practice is wide, he said.

Participants also noted that when the timing of tax invoice issuance is factored in, small businesses can wait far longer than the statutory deadline before actually receiving payment.

Ju Seon-gwan, a director at the Korea Corrugated Cardboard Packaging Industry Cooperative, said goods delivered at the start of a month are often invoiced only at month's end, with payment following 30 to 60 days after that — meaning actual collection can take up to 90 days. Meanwhile, payments for raw materials must be made within 30 days, creating a cash-flow gap between when receivables are collected and when suppliers must be paid.

Ju warned that simply shortening the deadline could prompt workarounds — such as delaying tax invoice issuance or using electronic promissory notes to push back the actual cash payment date — and called for low-interest financing support for SME purchasing costs to accompany any legislative change.

Attorney Jeong Jong-chae of law firm Jeongbak said the current 60-day rule, though intended as a maximum, risks being treated in practice as a standard payment term. "The 60-day limit is the legal ceiling, but in the field it can be perceived as the norm," he said. "The benchmark needs to be moved forward by cutting it to 30 days."

Legislative discussions are already under way. Democratic Party lawmaker Heo Seong-mu introduced a bill in June to reduce payment deadlines under both the Subcontracting Act and the Mutually Beneficial Cooperation Act from 60 days to 40. The 30-day target proposed by the SME community Thursday is 10 days shorter than that bill.

The Korea Federation of SMEs said it plans to submit recommendations to the government and the National Assembly based on the forum's discussions, covering both the deadline reduction and support measures to help embed the new system.


hong@heraldcorp.com