Methods of Payment

Korea has a stringent financial system, and meeting the demands for financing international commercial transactions can often be challenging. This is largely due to bank regulations designed to maintain the Bank for International Settlements (BIS) capital adequacy ratios above 7%, as well as strict loan requirements for SMEs and independent business owners. These challenges are compounded by Korea’s high household debt-to-GDP ratio, which stood at 98.9% in 2024, according to the International Institute of Finance (IIF).

Foreign startups entering the Korean market often need to invest financial resources into joint ventures, while their Korean partners typically contribute in-kind investments in exchange for equity. Joint ventures and foreign firms often turn to foreign bank branches operating in Korea for local currency financing. However, these branches handle only a small share of the Korean Won liquidity in the market.

Foreign companies can also access financing through specialized government-backed institutions like the Korea Trade Insurance Corporation (KTIC), which offers trade insurance and guarantees for cross-border transactions, and the Korea Investment Corporation (KIC), which promotes foreign investments. Additionally, foreign firms can benefit from tax incentives and grants under the Foreign Investment Promotion Act (FIPA).

Sources of financing in Korean Won include domestic commercial banks, regional banks, and specialized institutions such as the Korea Development Bank (KDB), the National Agricultural Cooperative Federation (NACF), the Industrial Bank of Korea (IBK), the Export-Import Bank of Korea (KEXIM), and the Korea Finance Corporation (KFC), which also support foreign-invested enterprises.

Major international banks operating in Korea provide a wide range of services for international trade payments. Understanding the appropriate methods for collecting payments on overseas sales transactions is crucial for SME business owners looking to expand their international 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/As and L/Cs are forms of extended credit in which the importer makes no payment for the goods until the agreed date in the L/C. In a D/A arrangement, the importer accepts a bill of exchange, promising to pay on a specified future date. The goods are released once the importer accepts the documents, but no payment is made until the maturity date. On the other hand, D/Ps are similar to D/As, except that in a D/P, the importer cannot clear the goods from customs until payment is made.

A sight L/C, however, requires immediate payment when the required documents are presented. In some cases, an importer can clear goods before making payment under a sight L/C, but this depends on the terms set forth in the L/C. A deferred payment L/C allows payment at a later, agreed-upon date (e.g., 30, 60, or 90 days after document presentation), and is a common form of credit for longer-term trade relationships.

For U.S. companies doing business with new or unfamiliar customers in Korea, CS Korea recommends using a confirmed L/C. It is one where the payment is guaranteed by a second bank (usually the exporter’s bank), in addition to the issuing bank’s guarantee. This provides greater security for the exporter because it ensures that any changes to the original L/C must be approved by both banks, minimizing the risk of disputes. By using a confirmed L/C through a U.S. bank, the responsibility for payment collection is placed on the banks rather than the seller, adding an additional layer of protection. Once business relationships have strengthened over time, other payment methods, such as open account or D/P, can be considered.

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 risks of nonpayment, U.S. companies may also contact credit rating agencies, that offer fee-based corporate information to evaluate the financial credibility of Korean companies. Agencies like Dun and Bradstreet Korea and the Korea Investors Service provide comprehensive credit ratings and financial assessments of local companies. Additionally, CS Korea offers valuable insights through its fee-based International Company Profile (ICP) Service, which includes a company’s credit standing, financial health, and other relevant business information. This service can be especially helpful when assessing new or unfamiliar partners in South Korea.

The Korean Commercial Arbitration Board 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 communicating and negotiating.

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 an 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) and the Financial Supervisory Service (FSS) supervise and examine all banks, including specialized and government-owned banks, securities, and insurance companies. The FSC and the FSS play a key role in financial restructuring and strengthening the regulatory framework governing the entire financial sector. Bank of Korea is the country’s central bank which sets price stability in consultation with the government, implements monetary and credit policy in the country, and oversees the foreign exchange transactions of banks.

South Korea’s online banking sector has grown rapidly since the launch of Kakao Bank and K-Bank in 2017, both of which operate entirely online. In 2023, the Financial Services Commission (FSC) introduced measures to ease the entry of new players, including allowing regional banks to expand nationwide.

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

The KORUS FTA has granted U.S. financial services unprecedented access to the South Korean market, which was previously more restricted. The Agreement establishes clear standards, regulations, and commitments that enhance transparency, predictability, and cost-efficiency within South Korea’s financial services sector.

However, regulatory barriers remain, particularly regarding the use of foreign cloud computing systems in financial services. The Korean Financial Services Commission (FSC) requires cloud service providers to meet local security conditions, primarily for national data protection reasons, which limits the flexibility of cross-border cloud operations.

South Korea has, however, continued to relax these restrictions through successive revisions of the Cloud Security Assurance Program (CSAP). Following the 2023 revision, additional updates in 2024 and 2025 introduced a tiered certification system (Low, Medium, and High) that allows cross-border data storage under specified security conditions. Low- and medium-tier certifications now permit foreign CSPs to host data outside Korea if they maintain domestic access logs and comply with local security standards, thereby reducing the need for domestic data centers and improving flexibility for financial institutions.

The United States continues to engage the Korean government on FTA commitments and digital trade issues, including data localization and cloud access for financial institutions. More information is available at USTR. 

Foreign Exchange Controls

South Korea has liberalized its foreign exchange controls in line with OECD standards. Under the Foreign Capital Promotion Act (FCPA), foreign firms that invest in Korea are guaranteed the right to remit proceeds from the sale of stocks, principal, interest, and service charges to their home country, in accordance with the terms outlined in their investment report or permission at the time of such remittances.

To withdraw capital, foreign companies must provide a stock valuation report issued by a recognized securities company or the Korea Appraisal Board. For foreign companies not investing under the FCPA, repatriation of funds must be conducted through authorized foreign exchange banks, and government approval is required.

Although South Korea does not typically impose restrictions on the repatriation of funds, it retains the authority to do so in exceptional circumstances, such as when the repatriation may harm the country’s balance of payments, cause excessive volatility in interest rates or exchange rates, or threaten the stability of the domestic financial markets. However, despite this authority, the Korean government has not exercised such measures since the 1997-98 Asian financial crisis, and there have been no instances of repatriation restrictions since then.

Please visit the Bank of Korea for more information.  

U.S. Banks and Local Correspondent Banks

List of American Banks in Korea

• Bank of America’s presence in Korea is mostly concentrated in investment banking, capital markets, and corporate finance.
• Bank of New York Mellon is primarily offering asset management and custody services.
• Citibank, N.A. – Following Citigroup’s 2021 exit strategy for Consumer Banking, its Korean office is also phasing out its retail banking business. There will be restrictions on personal account usage and consumer-facing financial products in the future.
• Wells Fargo Bank operates in South Korea with a focus on corporate banking, foreign exchange services, and treasury management. It offers a range of services to both corporate clients and institutional investors.
• JP Morgan-Chase Bank operates in South Korea primarily through its corporate and investment banking services. It offers a broad range of financial products, including capital markets services, asset management, and treasury services.

List of Major Korean Banks in Seoul

• KEB Hana Bank 
• Woori Bank 
• KB Bank 
• Shinhan Bank