Collecting a debt from a Korean company: payment orders, lawsuits and arbitration

Foreign creditors in Korea fall into a familiar pattern. A distributor stops paying for the last three shipments. A Korean client accepts the software and disputes the final milestone. A buyer goes quiet after a price increase. The instinct is to send a firm letter from abroad and wait. That rarely works and costs time that matters, because Korean law rewards the creditor who moves first: the first to attach a bank account gets paid from it.

This guide covers the tools available under the Civil Procedure Act, the Civil Execution Act and the Arbitration Act, how foreign judgments and awards are enforced, and how interest and limitation periods work. It assumes the debtor is a Korean company and the creditor is a foreign one; the same rules apply if your own Korean subsidiary is the creditor, with fewer formalities.

Before anything: the demand letter

Korean practice starts with a demand letter by certified mail (내용증명, naeyong jeungmyeong). The post office keeps a copy and certifies the content and date of delivery, so the letter becomes evidence: that the debt was claimed, when, and in what amount. It is cheap, it is taken seriously, and a letter from a Korean law firm on its own often produces payment or at least a proposal. Write it in Korean, state the contract, the invoices, the amount, the deadline and the next step.

Two cautions. First, a demand is a peremptory notice (최고, choego) under Article 174 of the Civil Act: it interrupts the limitation period only if a lawsuit, payment order, attachment or similar step follows within six months. A file of reminder letters does not keep a claim alive. Second, a demand letter warns the debtor. If assets are at risk, seek a provisional attachment first and send the letter afterwards.

Provisional attachment: freezing assets

A provisional attachment (가압류, gaamnyu) under Article 276 of the Civil Execution Act freezes the debtor’s assets to secure a money claim before judgment. It is decided on the documents, without hearing the debtor, and usually within days to a couple of weeks. The creditor shows a prima facie claim and the need for protection — that enforcement would otherwise become impossible or much harder — and normally gives security, often by a guarantee insurance policy rather than cash.

The best targets are bank deposits and receivables owed to the debtor by its own customers: an attachment order served on the bank or the customer blocks payment to the debtor. Real estate and shares can also be attached. A provisional attachment of a debtor’s main receivables often ends the dispute within weeks, because the debtor’s business relationships are now involved. If the claim later fails, the creditor is liable for the debtor’s losses, which is why the security is required; do not attach on a weak claim.

The payment order

For an undisputed debt, the payment order (지급명령, jigeup myeongnyeong) under Articles 462 and following of the Civil Procedure Act is the cheapest route. The creditor files an application, the court examines it on paper without hearing either side and, if it is in order, issues an order to pay that is served on the debtor. The stamp duty is one tenth of the duty on an ordinary lawsuit. Applications can be filed electronically through the court’s e-litigation system.

The debtor has two weeks from service to object. If it does not, the payment order becomes final and has the same effect as a final judgment: it is an enforceable title. If it does object, the case moves automatically into ordinary litigation, and the creditor tops up the court fee. That is not wasted effort: the case is already filed, and many debtors who object do so to buy time, which the court sees.

A payment order needs to be served at a Korean address; it cannot be served by public notice. A debtor that has vanished from its registered address is therefore better pursued through a lawsuit, where public service is possible. Check the corporate register before filing.

Small claims

Claims of KRW 30 million or less go through the small claims procedure (소액사건심판, soaek sageon simpan) under the Small Claims Trial Act. The court can issue a recommendation for performance — effectively a proposed judgment — which becomes final if the debtor does not object within two weeks; otherwise hearings are short, often a single session, and the judgment can be given without full reasons. For a foreign supplier with a modest unpaid invoice, this is usually faster than chasing a payment order through objections.

Ordinary litigation

A disputed claim goes to the district court with jurisdiction over the debtor’s seat, or the court agreed in the contract. Proceedings are in Korean under the Court Organization Act, so every document and email exhibit must be translated. Korean civil procedure is document-driven: written briefs, a limited number of hearings, little oral evidence and no US-style discovery. First-instance commercial cases typically take around a year; appeals go to the High Court and, on points of law, the Supreme Court.

A foreign company can sue directly, through a Korean lawyer under a power of attorney signed by its representative and supported by corporate documents — certificate of incorporation, proof of signing authority — apostilled and translated; see apostilles for Korea. The court may order a foreign plaintiff without assets in Korea to give security for costs on the defendant’s application. The loser pays the winner’s court costs and a portion of lawyers’ fees fixed by court rules, not the full bill.

Korean courts encourage settlement. A court mediation (조정, jojeong) or a decision in lieu of conciliation is common, and a settlement recorded by the court is itself an enforceable title. Many claims end there, at a discount for speed.

Simplified comparison; times vary by court and complexity.

Interest and costs

Unless the contract sets a rate, late-payment interest runs at 5% a year for civil debts and 6% a year for commercial debts — and a debt arising from a company’s business is commercial. From the day after the complaint or payment order is served, the rate under the Act on Special Cases Concerning Expedition of Legal Proceedings rises to 12% a year, unless the debtor had reasonable grounds to dispute the debt. That 12% is a real lever: a debtor who drags out an undisputed claim pays for the privilege.

A contractual default rate is enforceable if it is not excessive; very high rates can be reduced by the court as a penalty or, for loans, are capped under the Interest Limitation Act. Keep the interest claim in every demand and application, with the start date tied to the due date on each invoice.

Limitation periods

The limitation period (소멸시효, somyeol sihyo) is where foreign creditors lose claims they would have won. The general period for civil claims is 10 years. Claims arising from commercial activity — almost every B2B debt — expire after 5 years. Some claims expire after 3 years, including the price of goods sold by merchants and fees for work done by contractors and certain professionals, and some even sooner. The clock starts when payment falls due.

The period is interrupted by a claim in court, a payment order, an attachment or provisional attachment, or by the debtor’s acknowledgement (승인, seungin) of the debt under Article 168 of the Civil Act — a part payment or an email accepting the amount owed counts. Keep those emails. A demand letter interrupts only if formal action follows within six months. If the contract is governed by a foreign law, limitation is generally governed by that law, which may be shorter or longer.

Arbitration

If the contract contains an arbitration clause, a Korean court will refer the dispute to arbitration if the debtor objects in time, under Article 9 of the Arbitration Act. The Korean Commercial Arbitration Board (KCAB) administers both domestic and international cases; its international rules were revised with effect from 1 January 2026, with expedited procedures for smaller claims and an early-determination mechanism to dispose of manifestly unmeritorious claims or defences. ICC, SIAC and HKIAC arbitrations seated elsewhere are equally common in Korean contracts.

Arbitration suits disputes that are complex, technical or international, and a party that wants a neutral forum and English as the language. It is less suited to a small undisputed invoice: a payment order would be faster and cheaper, but a valid arbitration clause can block it if the debtor raises the clause. When drafting new Korean contracts, consider a clause that keeps simple money claims open to Korean courts while sending substantive disputes to arbitration; see trading companies in Korea for contract structure.

In Korean collection, the first creditor to the bank account usually wins. Speed is not aggression; it is the job.

Voixa Korea

Enforcing foreign judgments and arbitral awards

A foreign court judgment is not enforceable in Korea automatically. The creditor sues for an execution judgment (집행판결, jiphaeng pangyeol) under Articles 26 and 27 of the Civil Execution Act, and the Korean court checks the conditions of Article 217 of the Civil Procedure Act: the foreign court had international jurisdiction; the defendant was properly served in time to defend, or appeared; recognition is not contrary to Korean public policy; and there is reciprocity — the foreign country would recognise a comparable Korean judgment. The court does not re-examine the merits. Damages that are not compensatory, such as punitive damages, may be recognised only in part under Article 217-2.

Arbitral awards are easier. Korea has been a party to the New York Convention since 1973, with the reciprocity and commercial reservations, so awards made in other Convention states are enforced as a matter of course. Since the 2016 amendment, enforcement under Articles 37 and 38 of the Arbitration Act is by a court decision (결정, gyeoljeong) rather than a full judgment, which is quicker. The grounds for refusal are the Convention grounds — invalid agreement, lack of notice, excess of mandate, irregular procedure, non-arbitrability, public policy — and Korean courts read them narrowly.

From title to money

A final judgment, a final payment order, a court settlement or an enforced award is an enforceable title (집행권원, jiphaeng gwonwon). With it, the creditor can attach and collect bank deposits and receivables, seize movable property and auction real estate. If the creditor does not know where the assets are, Korean law provides three tools. A property disclosure order (재산명시, jaesan myeongsi) under Article 61 of the Civil Execution Act requires the debtor to list its assets under oath; refusal or false listing has penal consequences. A property inquiry (재산조회, jaesan johoe) under Article 74 lets the court query banks, land registries and other institutions. And the defaulters’ register (채무불이행자명부, chaemu bulihaengja myeongbu) under Article 70 publicly lists debtors who fail to pay within six months — a reputational sanction that Korean companies take seriously, as banks see it.

If the debtor is insolvent, collection becomes a claim in rehabilitation or bankruptcy under the Debtor Rehabilitation and Bankruptcy Act. Claims must be filed within the court’s deadline, individual enforcement stops, and secured creditors and attachments obtained shortly before the filing may be challenged. A creditor that finds out about a rehabilitation case late can lose its vote and part of its recovery, so watch for the court’s public notices once a debtor stops paying altogether.

Collection agencies and what they may do

Korea regulates debt collection tightly. Only credit information companies (신용정보회사, sinyong jeongbo hoesa) licensed for collection under the Credit Information Use and Protection Act may collect debts on behalf of others as a business; they may collect commercial claims, and civil claims only where an enforceable title exists. The Fair Debt Collection Practices Act prohibits violence, threats, night-time visits, contacting third parties to shame the debtor and misleading statements. An unlicensed agent — including some international collection agencies working through local contacts — exposes the creditor to criminal and reputational risk.

In practice, a foreign creditor gets better results from a Korean law firm that can send a demand, file for attachment and a payment order, and negotiate a settlement in one sequence, than from an agency that can only call and write.

A worked example

A Danish maker of laboratory equipment sold USD 380,000 of instruments to a Korean distributor on 60-day terms. Three invoices are overdue; the distributor’s managing director cites slow end-customer payments and offers nothing in writing. The contract is governed by Korean law, with Seoul Central District Court as the forum.

The Danish company’s Korean lawyer checks the distributor’s corporate register and finds it has two major hospital customers. She files for provisional attachment of the receivables owed by those hospitals, with security provided by a guarantee insurance policy; the order is issued within ten days and served on the hospitals. Only then does she send a demand letter. A week later the distributor proposes a payment plan. The parties settle at the full principal with interest at 6%, payable over four months, recorded as a court settlement so that any default can be enforced directly. Had the distributor objected, a payment order and then a lawsuit — with 12% interest from service — were ready to go.

Mistakes we see

1. Sending reminders for a year while the limitation period and the debtor’s assets run down.
2. Suing the wrong entity — a brand name or an affiliate instead of the company that signed.
3. Warning the debtor before freezing assets.
4. Filing a payment order against a debtor that has disappeared from its registered address.
5. Forgetting the arbitration clause and losing months in the wrong forum.
6. Untranslated evidence and corporate documents without apostilles.
7. Using an unlicensed collector.
8. Ignoring a rehabilitation notice and missing the claim-filing deadline.

Prevention: contracts that collect themselves

Most of the work in Korean collection can be done when the contract is signed. Ask for the counterparty’s business registration certificate and corporate register extract, and contract with that entity. Use a Korean-language version or a bilingual contract with a clear governing law and forum. Agree a default interest rate. For larger exposures, take security: a payment guarantee from a Korean bank, a notarised deed (공정증서, gongjeong jeungseo) with an enforcement clause — which is itself an enforceable title for a fixed money claim, so no lawsuit is needed — or retention of title to goods. Credit insurance through K-SURE or a private insurer covers export receivables and brings collection support with it.

Watch the warning signs too: changes of representative director, a move of registered office, tax arrears and new related companies. Korea’s corporate register and credit bureaus make these visible to anyone who looks; see Korean business registration numbers for how to check a company.

Korean terms you will meet

Questions readers ask

About the author

Alexander Baranov

Founder of the BCA Group · cross-border corporate and tax adviser since 2008

Alexander advises foreign founders and groups on company formation, tax structuring and corporate law in more than 40 jurisdictions across Europe, the Gulf, Asia and Latin America. He is the author of nine books on international business and tax and writes regularly for professional finance and tax journals. He works in English, German, Spanish and Russian.

This guide is based on the Korean statutes cited in the text and on our own filings. It is reviewed when the law or official rates change.

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