KOSBI: "Payment Period for Principal-Subcontractor Transactions Should Be Reduced from 60 to 30 Days"

Liquidity Crisis for SMEs Highlights Need for Faster Cash Turnover

Unchanged Standards for 50 Years... Calls for Realistic Improvements

Analysis Shows 66% of Payments Made Within 30 Days

Amid the liquidity crisis facing small and medium-sized enterprises (SMEs) due to the Middle East war and domestic demand stagnation, there have been calls to adjust the payment period between large corporations and SMEs from 60 days to 30 days to better reflect current realities.

On May 21, the Korea Small Business Institute (KOSBI) stated in an issue focus report titled "Measures to Shorten the Payment Period Between Large Corporations and SMEs to Improve SME Liquidity" that "the payment period for principal-subcontractor transactions, which has remained unchanged for 50 years, is adversely affecting the financial health of SMEs."

The 60-day payment period for principal-subcontractor transactions was established in 1975 with the enactment of the SME Affiliation Promotion Act, and has been maintained for the past 50 years in related laws such as the Subcontracting Act and the Win-Win Cooperation Act. Although the 60-day period is the maximum limit, taking into account late interest and other factors, in practice it has become the customary payment cycle in the industry.

Even in the National Assembly, there was a consensus—such as the 2008 push to amend the Subcontracting Act to set the payment period at 30 days—but the legislative effort ultimately failed. From 2005 to 2019, seven bills were introduced by lawmakers, but the standard has solidified as a customary benchmark based on existing laws.

Usage of External Procurement Funds by SMEs. Korea SMEs and Startups Agency

SMEs tend to use a large share of externally procured funds to pay for purchases, meaning that longer payment periods increase their financial costs. In 2025, 70.3% of SMEs reported using external funding for purchase payments, up from 53.4% in 2024. The share of external borrowings used for purchase payments was higher among medium-sized enterprises (73.6%) compared to small enterprises and micro-businesses (67.6%), indicating that the larger the company, the greater the reliance on external borrowings for purchase payments.

According to KOSBI's analysis of 832,469 transactions from 6,795 companies, the average payment period was 27.4 days. By payment period, 66.0% of payments were made within 30 days; 32.3% were settled within 16 to 30 days, 23.8% within 6 to 15 days, and 18.4% within 31 to 45 days.

Payment Periods for Sales Proceeds by Company Size. Small and Medium Business Administration

By company size, the average payment period was 22.5 days for large corporations, 28.3 days for mid-sized enterprises, and 30.7 days for SMEs. By industry, the construction sector had the longest payment period at 32.5 days, followed by manufacturing (28.4 days), transportation and warehousing (27.2 days), and real estate (26.3 days).

Overseas, in the public sector, the EU, United States, United Kingdom, and Singapore all mandate a 30-day payment period for principal-subcontractor transactions. In the private sector, either legal obligations or voluntary participation in shortened payment periods is spreading.

Shortening the payment period for transactions has been shown to enhance corporate value and profitability. Subcontractors benefit from improved cash flow, reduced financial costs, and increased capacity for investment and hiring. For principal contractors, the advantages include securing a stable supply chain and improvements in quality and productivity. At the national level, economic benefits include mitigation of polarization, revitalization of domestic demand, and increased transparency in transactions.

Researcher Baek Hoon stated, "It is reasonable to reduce the current standard transaction payment period from 60 days to 30 days, which could be a key step in helping SMEs overcome their liquidity crisis." He also suggested that, rather than a blanket application, a phased approach should be considered for SMEs with limited payment capacity.

As measures to encourage voluntary reduction of payment periods, Researcher Baek proposed: ▲ introducing shorter statutory periods with phased implementation; ▲ shortening the maturity period of settlement systems used for principal-subcontractor transactions, such as accounts receivable; and ▲ expanding related budgets.

Cho Joohyun, President of KOSBI, emphasized, "At a time when SMEs are facing deteriorating financial conditions, shortening the entrenched transaction payment period, which has lasted for the past 50 years, will offer substantial support to SMEs."

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