Methods of Payment

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 the mandates banks to hold BIS (Bank for International Settlement Reserves) capital adequacy ratios above the seven percent and stricter on loan requirements for SMEs and independent business owners, given significant personal household debt to GDP ratio (106.1 percent, 2022). 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 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, letters of credit and documentary collections as well as for more information about the methods of payment or other trade finance options, please read the Trade Finance Guide.

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, the Korea Investors Service, 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.

The Korean Commercial Arbitration Board (http://www.kcab.or.kr/servlet/main/1000) 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 new customer.

Banking Systems

Korea’s financial system consists of banking and non-bank financial institutions.

The Financial Services Commission (FSC) at http://www.fsc.go.kr/eng/ and the Financial Supervisory Service (FSS), its regulatory arm, are responsible for supervising and examining all banks, including specialized and government-owned banks, as well as securities and insurance companies. The FSC and the FSS play a key role in financial restructuring and strengthen the regulatory and supervisory framework governing the entire financial sector. Bank of Korea is the Central bank of the country which sets price stability in consultation with government, implement monetary and credit policy in the country, and oversees the foreign exchange transactions of banks.

Financial Services and U.S.-Korea Free Trade Agreement (KORUS FTA)

The KORUS FTA has provided the U.S. financial services industry unprecedented access to the Korean market from the movement to a negative regulatory approach in this sector. The Agreement locks in standards, regulations, and commitments that increase the transparency, predictability, and cost-efficiency for operating in the Korean financial services market.  However, restrictions on the use of foreign Cloud Computing system for the financial services still presents regulatory obstacles limiting market access for U.S. cloud service providers.  Korean Financial Services Commission (FCS) requires the cloud service company to meet the locally specific technical condition for national security reasons, which restricts the flexibility of foreign service suppliers to offer services on a cross-border basis.  The United States continues to engage the Korean government on FTA commitments in financial services. 

Foreign Exchange Controls

Korea has liberalized foreign exchange controls, in line with OECD benchmarks. A foreign firm that invests under the terms of the Foreign Capital Promotion Act (FCPA) is guaranteed to remit proceeds accruing from the sale of stocks, the principal, interests, and service charges paid to a foreign country in accordance with the details of the report or permission of the foreign investment at the time of such remittance.

To withdraw capital, a stock valuation report issued by a recognized securities company or the Korean Appraisal Board must be presented. Foreign companies not investing under the FCPA must repatriate funds through authorized foreign exchange banks after obtaining government approval. Although Korea does not routinely limit the repatriation of funds, it reserves the right to do so in exceptional circumstances, such as in situations which may harm its international balance of payments, cause excessive fluctuations in interest or exchange rates, or threaten the stability of its domestic financial markets. To date, the Korean government has had no instance of limiting repatriation for these reasons, even during and after the 1997-98 financial crisis.

For information about monetary and foreign-exchange policies, please visit the Bank of Korea.

U.S. Banks and Local Correspondent Banks

List of American Banks in Korea

• Bank of America - Seoul Branch
• Bank of New York Mellon
• Citibank, N.A. 

List of Major Korean Banks in Seoul

• KEB Hana Bank
• Woori Bank
• Kookmin Bank
• Nonghyup Bank (NH Bank)
• Shinhan Bank

For additional information, visit the U.S. Department of State Investment Climate Statements.