Activating International Factoring Payment in Korea

Activating International Factoring Payment in Korea

In most recent times, the use of the letter of credit or L/C method has been lessened considerably while the later remittance method, including an open account, has been growing in popularity as the preferred method of payment in international trade. For exporters, a change in payment methods increases the risk of collecting export payments which can hinder overall export trade. In order to prevent such credit risk which the exporter can bear, using the international factoring method can be a positive solution. When the exporter uses international factoring, the exporter can obtain cash from the factor through trade finance and avoid credit risk even if the post payment type which includes open account is employed. Even though the effectiveness of international factoring has been proven in other countries, Korea s usage of international factoring is very low compared to Europe, US and other major Asian countries. Given these circumstances, this paper examines the conditions and limitations of Korea s international factoring system with regards to its the legislation and management. Moreover, it also proposes the following action plan for promoting the use of international factoring despite its limitations. First, regulations and systems for international factoring must be organized. Second, there should be more finance companies providing international factoring service. Third, the commission for factoring must be reduced. Fourth, a policy to support small companies must be found. Finally, the training of specialists for a vibrant international factoring business is necessary and must be prioritized.