40% of SMEs say finances tighter than last Chuseok

Fewer than half plan to pay holiday bonuses

Early collection of receivables tops list of funding strategies

An aluminum manufacturing factory in Hwaseong, Gyeonggi Province. [Korea Federation of SMEs]
An aluminum manufacturing factory in Hwaseong, Gyeonggi Province. [Korea Federation of SMEs]

"We even stopped giving employees the 100,000 won ($72) holiday bonus we used to hand out every year. We simply can't afford it anymore."

A, who runs a small business in Hwaseong, Gyeonggi Province, made the remark in an interview ahead of Chuseok. Rising interest rates and higher labor costs have worsened the company's finances, forcing the decision. A's firm processes and delivers goods on a contract basis, meaning factory shutdowns during the holiday period directly cut into sales. "When a holiday comes around, the days off pile up and revenue drops — but payroll still has to go out," A said. "Everyone else is happy for the break, but I dread the holidays coming."

A is far from alone in struggling with cash flow ahead of Chuseok. Kim Hee-jung, head of the economic policy division at the Korea Federation of SMEs, said the financial pressure on small businesses has become severe — to the point where firms are not only rushing to collect receivables early but also considering delaying their own payments to suppliers.

4 in 10 SMEs say finances worse than last Chuseok

A Korea Federation of SMEs survey of 1,000 small and medium-sized enterprises found that 40 percent said their financial situation this Chuseok was worse than a year ago. Only 45.1 percent said they planned to pay a holiday bonus at all — fewer than half. Among those offering a fixed-amount bonus, the average payout per employee was 665,000 won.

Companies said they needed an average of 256.45 million won ($186,000) in Chuseok-related funds per firm. Of that, only 197.97 million won, or 78.44 percent, was secured, leaving an average shortfall of 58.48 million won.

Weak sales and revenue were cited as the leading cause of the cash crunch, named by 71.5 percent of respondents in a multiple-answer question. Rising raw material costs (59.5 percent), higher labor costs (21.8 percent) and delays in collecting payments (12.8 percent) were also identified as factors squeezing finances.

When asked how they planned to cover the shortfall, the most common answer was early collection of receivables from buyers, cited by 40.6 percent — a higher share than those planning to borrow from financial institutions (38.3 percent).

For small businesses, how quickly they can convert outstanding invoices into cash before the holiday directly affects their ability to manage operations. With wages, bonuses and raw material payments all concentrated around the same period, a delay in collecting receivables can tip a company into a temporary liquidity crunch.

Major conglomerates advance 9.6 trillion won in payments to suppliers

As small businesses' demand for cash ahead of Chuseok intensifies, major companies have been moving to release payments to their suppliers early. According to the Korea Enterprises Federation and its SME cooperation center, 20 major conglomerate groups — including Samsung, SK Group, Hyundai Motor Company and LG Group — will advance a combined 9.6 trillion won ($6.96 billion) in supplier payments ahead of the holiday.

The payments, originally scheduled for later dates, are being released anywhere from about a week to nearly a month early to ease the cash-flow burden on partner firms. Early payment of supplier invoices offers immediate relief to small businesses, which tend to be more vulnerable to cash-flow disruptions than larger companies.

The government and the financial sector have also stepped in to meet the funding needs of small businesses and self-employed merchants around the holiday period. According to the Financial Services Commission, policy finance institutions and commercial banks will together supply a total of 103 trillion won ($74.6 billion) to small businesses and merchants around Chuseok. Policy finance institutions will provide 23 trillion won through special loans and guarantees, while commercial banks will extend 79.6 trillion won through preferential-rate lending and other measures.

"It is urgent that the financial sector pay close attention and provide proactive support so that the benefits of policy measures reach vulnerable groups — including traditional market vendors — as quickly as possible," Kim said.


boo@heraldcorp.com