Discusses the most common methods of payment, such as open account, letter of credit, cash in advance, documentary collections, factoring, etc. Includes credit-rating and collection agencies in this country. Includes primary credit or charge cards used in this country.
Last Published: 8/30/2019

The Korean financial system is frequently hard-pressed to meet the demands for financing and capital for international commercial transactions.  This is mainly attributed to banks holding BIS (Bank for International Settlement Reserves) capital adequacy ratios above the 10 percent required and to being stricter on loan requirements for SMEs and small businesses, given significant personal household debt.  Foreign companies in start-up operations with a Korean partner often need to invest financial resources for the joint venture, while their Korean partner makes in-kind investments, i.e., land or facilities, for their share of equity.  Joint-venture companies and foreign firms often work with branches of foreign banks for local-currency financing, although the branches of foreign banks control a small portion of available Korean Won.

Sources of Korean Won financing have included domestic commercial banks, regional banks, and specialized banks, including the Korea Development Bank, the National Agricultural Cooperative Federation, the Industrial Bank of Korea (IBK), and the Korea Housing Bank.

Korea’s major international banks offer services for all types of international trade payment methods.  When you engage in business activities with a customer overseas, knowing how to collect payment on an overseas sales transaction is the single most critical factor for SME business owners who aspire to expand their international business operations. 

Common overseas payment methods include: 

  • Sight and deferred payment Letters of Credit (L/C),
  • Documents against Acceptance (D/A) and Documents against Payment (D/P), and
  • Open Account Transactions. 

D/A and L/Cs are forms of extended credit in which the importer makes no payment for the goods until the date called for in the L/C.

D/P is similar to D/A except that the importer cannot clear the goods from customs prior to making payment.  In some cases, an importer can clear goods prior to payment under a sight L/C.  L/C transactions generally follow standard international Uniform Customs and Practice (UCP) codes.  

CS Korea recommends that U.S. companies consider dealing on a confirmed L/C credit basis with new and even familiar customers.  A confirmed L/C through a U.S. bank is recommended because it prevents unwanted changes to the original L/C, and it places responsibility for collection on the banks rather than on the seller.  Once a business relationship has strengthened over time, use of payment mechanisms other than L/Cs can be employed.  

For more extensive details on international payment methods, please see:  https://www.export.gov/article?id=How-to-Get-Paid.  For specifics on letters of credit and documentary collections, please see here https://www.export.gov/article?id=Chapter-3-Letters-of-Credit and here https://www.export.gov/article?id=Trade-Finance-Guide-Chapter-4-Documentary-Collections.  For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at www.Export.gov/TradeFinanceGuide.

To reduce risk of nonpayment, U.S. companies may also contact credit rating agencies, which can provide fee-based corporate information to evaluate the financial credibility of Korean companies.  Dun and Bradstreet Korea (https://www.dnb.com/product/contract.htm), the Korea Investors Service (http://www.kisrating.com/en/), and the Korean Information Service are known to provide fee-based credit rating services in Korea. 

CS Korea can provide valuable information, including a company’s credit standing, through our fee-based International Company Profile Service https://2016.export.gov/southkorea/servicesforuscompanies/index.asp#P40_2693. The Korean Commercial Arbitration Board http://www.kcab.or.kr/servlet/kcab_adm/memberauth/5000 and private collection agencies can provide arbitration and collection services.  KCAB's mediation staff can counsel on the arbitration procedure to suit both Korean and foreign companies' specific needs and assist in communication and negotiation.

Whatever payment terms are agreed upon, make sure they are understood by all parties and that your client, representative or contact signs a mutually agreed document.  Payment terms must be agreed to in advance.  It is rarely wise to sell on open account to a brand new customer.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.