Electronic Promissory Note Maturity Shortened to 2 Months... Payment Guarantee Also Made Mandatory

Ministry of SMEs and Startups Announces 'Bill System Reform and Innovative Finance Activation' to Create a Fair Supply Transaction Environment
Mandatory Electronic Bill Issuance Expanded to Corporations with Assets Over 500 Million KRW in Second Half of the Year

Kwon Chil-seung, Minister of SMEs and Startups, is attending the Emergency Economic Central Countermeasures Headquarters meeting held on the 12th of last month at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Jong-hwa] The maturity period of electronic promissory notes issued by large corporations will be shortened from the current 3 months to 2 months, and when large and medium-sized enterprises issue promissory notes in subcontracting and consignment transactions, payment guarantees will be mandatory.

Additionally, in the second half of the year, the mandatory issuance of electronic promissory notes will be expanded to corporations with assets of 500 million KRW or more, and from 2023, all corporate businesses will be required to issue electronic promissory notes, leading to the abolition of paper promissory notes.

The Ministry of SMEs and Startups announced these details on the 18th at the 38th Emergency Economic Central Countermeasures Headquarters meeting, jointly established with related ministries, titled the "Promissory Note System Reform and Innovative Finance Activation Measures."

Electronic Promissory Note Maturity Shortened to 2 Months... Encouraging Cash Payments

The government will first shorten the maturity of electronic promissory notes issued by large corporations from the current 3 months to 2 months next year through amendments to the Electronic Promissory Note Act and the Fair Trade Agreement. This aims to encourage early collection of sales proceeds and reduce discounting costs for selling companies (small businesses) by shortening the promissory note issuance date when large corporations pay subcontracting transaction amounts via promissory notes (including substitute payments).

When large and medium-sized enterprises issue promissory notes, payment guarantees will be made mandatory to suppress promissory note issuance and promote cash payments by revising the Subcontracting Act and the Win-Win Cooperation Act.

The issuance of electronic promissory notes will also be gradually mandated. In the second half of this year, the enforcement decree of the Electronic Promissory Note Act will be amended to expand the mandatory issuance target from corporations with assets of 1 billion KRW or more (287,000 entities) to corporations with assets of 500 million KRW or more (400,000 entities).

In 2023, the Electronic Promissory Note Act will be amended to expand the issuance target to all corporate businesses (787,000 entities), and the maximum number of endorsements will be reduced from the current 20 times to 5 times. By expanding the mandatory issuance of electronic promissory notes, the natural reduction of paper promissory notes will be induced, and paper promissory notes are expected to be abolished after 2023.

Expansion of Win-Win Payment to 150 Trillion KRW, Promotion of Factoring to Monetize Accounts Receivable

The government also plans to expand the target amount for win-win payments to 150 trillion KRW next year to activate win-win payments, and will encourage the spread of win-win payments to second-tier and lower-tier partners through incentives and improved convenience.

The guarantee for buyer financing operated by the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation will be expanded from the current 6.3 trillion KRW to 7 trillion KRW by next year, increasing the proportion of cash payments and strengthening the transaction safety net.

Policy financial institutions will also promote factoring (purchase of accounts receivable) that allows monetization of accounts receivable without repayment claims by utilizing their own evaluation systems or linking with private fintech companies. This is expected to be implemented by integrating private fintech companies with the Small and Medium Business Corporation’s artificial intelligence evaluation system.

Shift from Promissory Note Abolition to 'Minimizing Side Effects' Due to COVID-19

An official from the Ministry of SMEs and Startups explained, "We were promoting the gradual abolition of promissory notes considering the prolonged payment periods and risks of chain bankruptcies. However, due to COVID-19, considering some positive effects of promissory notes such as sales decline of small businesses and financial conditions of purchasing companies, we decided to improve related systems to minimize side effects rather than completely abolish promissory notes."

Minister Kwon Chil-seung of the Ministry of SMEs and Startups said, "This measure aims to improve the promissory note system to minimize side effects caused by promissory note transactions, activate alternative payment methods to promissory notes, and promote innovative finance to create a fair supply transaction environment. We ask for prompt implementation of tasks by each ministry and voluntary and active cooperation from purchasing companies for fundamental improvement of supply transactions in the future."

This content was produced with the assistance of AI translation services.