Jungjingong "Public Sector Role Needed to Activate Accounts Receivable Factoring"

KOSME Issue Focus... Includes Measures to Diversify Liquidity Supply for SMEs

[Asia Economy Reporter Kim Cheol-hyun] A survey has revealed the need to revitalize the non-recourse accounts receivable factoring business, which can complement promissory notes or accounts receivable secured loans. Accounts receivable factoring is a financial product in which banks purchase accounts receivable from companies at a certain discount rate and pay the amount, offering the advantage of early cash conversion of sales proceeds. In particular, non-recourse accounts receivable factoring allows stable fund management as subcontractors have no repayment responsibility even if the primary contractor goes bankrupt, unlike promissory notes or accounts receivable secured loans.

The Small and Medium Business Corporation (Chairman Kim Hak-do, hereinafter referred to as SBC) announced on the 28th that it published the 'KOSME Issue Focus,' which contains the results of the 'Policy Demand Trend Survey for Diversifying Liquidity Supply Support Projects for SMEs' and its policy implications.

According to the survey results, transactions between small and medium enterprises accounted for nearly half (48.2%), and 72.8% received sales proceeds in cash. However, 3 out of 10 companies received payments through cash-equivalent methods such as promissory notes (12.9%) and accounts receivable secured loans (14.4%), experiencing difficulties due to delayed payment collection.

Companies commonly cited repayment claims due to client bankruptcy and prolonged payment terms as difficulties in using promissory notes and accounts receivable secured loans. For promissory notes, the main issues were chain bankruptcies caused by note defaults (36.6%), prolonged payment terms (35.5%), and high discount fees (22.6%). For accounts receivable secured loans, the main issues were long payment periods (40.0%) and exercise of repayment claims (26.7%).

However, more than 8 out of 10 responding SMEs (86.8%) had no experience using accounts receivable factoring, and over half (53.0%) were completely unaware of factoring. When asked about their willingness to use non-recourse accounts receivable factoring, 63.2% responded affirmatively.

Chairman Kim Hak-do stated, "The survey results suggest the need to actively promote factoring businesses targeting not only transactions with large and creditworthy companies but also transactions between SMEs in the public sector to revitalize the market." He added, "In addition to policy support, the voluntary efforts of small and medium enterprises to participate in establishing fair trade relationships with partner companies based on ESG management and fostering a culture of mutual cooperation seem important."

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