To ease the liquidity crunch facing small and midsize businesses, a view has been raised that the payment deadline for consideration in subcontracting transactions between large and small companies should be shortened from the current 60 days to 30 days.
Korea SMEs & Startups Institute (KOSI) on the 21st released a report titled "Measures to shorten payment deadlines for large-small company consideration to boost SME liquidity." It analyzed social debate over the subcontracting transaction consideration payment deadline (60 days) maintained for the past 50 years, the actual transaction status, overseas systems, and policy effects.
KOSI analyzed the average payment period for 2022–2024 using subcontracting transaction data from 6,795 corporations and 832,469 cases. As a result, the overall average payment period was tallied at 27.4 days.
By corporation size, large corporations had the shortest average at 22.5 days, followed by mid-tier corporations at 28.3 days and small and midsize corporations at 30.7 days. By industry, construction was the longest at 32.5 days, followed by manufacturing at 28.4 days, transportation and warehousing at 27.2 days, and real estate at 26.3 days.
Overseas, it was found that a trend is spreading to cap payment deadlines at within 30 days, centered on the public institutional sector. The European Union (EU), the United States, the United Kingdom, and Singapore have mandated the 30-day payment principle in the public institutional sector, and in the private sector, legislation or expanded voluntary participation has followed.
KOSI analyzed that shortening transaction consideration payment deadlines also has a positive impact on corporations' value and profitability. For subcontractors, it is expected to help secure cash liquidity, reduce financing expense, and expand investment and hiring, while prime contractors could see supply chain stabilization and improvements in quality and productivity. Nationally, it judged that economic benefits such as easing polarization, boosting domestic demand, and strengthening transaction transparency could occur.
Based on this analysis, it concluded that it is reasonable to shorten the current subcontracting transaction consideration payment deadline from 60 days to 30 days. However, since it could be a burden for some small and midsize corporations with limited funding capacity, it said a phased application considering industry and corporation size is necessary.
Cho Juhyeon, president of KOSI, said, "Shortening the subcontracting transaction consideration payment deadline that has been in place for the past 50 years could provide practical help as small and midsize businesses face funding difficulties."