Convert Accounts Receivable to Cash Quickly Without Worrying About Default

SMEs Implementing 'Maechul Chaegwon Factoring' Finance

[Asia Economy Reporter Donghyun Choi] The Ministry of SMEs and Startups and the Small and Medium Business Corporation announced on the 3rd that they are implementing the 'SME Accounts Receivable Factoring' finance, which allows small and medium enterprises to convert their accounts receivable into cash early to secure liquidity.

Until now, selling companies have been able to convert delivery payments into cash early by utilizing electronic accounts receivable secured loans. However, if the purchasing company fails to pay the accounts receivable on time, banks have reclaimed existing loans from the selling companies, leading to cases of deteriorated management.

Accordingly, the Ministry of SMEs and Startups will newly promote factoring finance without recourse rights, allowing selling companies to convert accounts receivable into cash early without worrying about the purchasing company's default, with a scale of 37.5 billion KRW this year.

The support targets are selling companies that have financial statements for the past three years and are SMEs with more than three transactions with the same purchasing company within the past year.

The eligible receivables are electronic tax invoices of 10 million KRW or more issued after the first day of the month prior to the application date. The support limit per company is up to one-third of sales (one-half for manufacturing), with selling companies eligible for up to 1 billion KRW and purchasing companies up to 3 billion KRW.

The factoring period can be selected by the selling company between 30 and 90 days, considering the payment due date of the accounts receivable. Since the purchasing company's consent to the transfer of accounts receivable is required, prior consultation between the two companies is essential.

When the policy institution acquires accounts receivable, a discount rate of 3.4% to 4.55% per annum is applied. For a 90-day accounts receivable application, the actual discount rate borne by the selling company is about 1.12%.

Factoring applications are accepted online through the Small and Medium Business Corporation website, and the program may close early if the budget is exhausted.

Detailed information on support criteria, eligible targets, and application procedures for factoring can be found on the Ministry of SMEs and Startups website or the Small and Medium Business Corporation website.