The limitation period for payment for goods may be 3 years, not 5

When talking about a company's receivables, you often hear that ‘commercial claims last 5 years.’ That is not wrong. Article 64 of the Commercial Act sets the extinctive prescription period for claims arising from commercial activities at 5 years. The problem is the proviso in the same article: if another law provides a shorter period, that provision applies.

The 3-year periods in the Civil Act

Article 163 of the Civil Act lists claims that expire after 3 years. Even picking out only the items relevant to company practice, there are quite a few: payment for products and goods sold by producers and merchants, claims relating to the work of craftsmen and manufacturers, claims of a contractor relating to construction work, and fees and interest set for periods of 1 year or less.

So a manufacturer's payment for delivered goods or a wholesaler's or retailer's payment for goods sold on credit may need to be acted on within 3 years. Equipment rental fees payable monthly may also be subject to the short period. Which category applies has to be determined by looking at the transaction, so lumping everything together as a single line of ‘receivables’ in your books is risky.

• Payment for goods sold by a merchant and claims relating to a manufacturer's work: 3 years
• A contractor's claim for construction payments: also 3 years
• Other claims from commercial activities: 5 years in principle
• Claims confirmed by a judgment or mediation: 10 years (Article 165 of the Civil Act)

The limitation period runs from when payment can be claimed. If a payment date was set, it runs from that date; if not, in principle from the time of delivery. For transactions with deliveries in several installments, the period can run separately for each one, so if you relax by looking only at the date of the last transaction, the oldest payments may expire first.

A certified letter alone does not stop the clock

The limitation period is interrupted by a claim, by seizure, provisional attachment or provisional injunction, or by the debtor's acknowledgment (Article 168 of the Civil Act). What is often misunderstood here is the certified letter (내용증명). Demanding payment by certified letter is only an out-of-court demand (최고), and such a demand does not interrupt the limitation period unless you take a step such as a lawsuit or provisional attachment within 6 months (Article 174 of the Civil Act).

If the limitation period has only a few months left, think of the 6 months from the date you send the certified letter not as a deadline but as a starting point. Conversely, if the business partner stamped a balance confirmation or acknowledged the remaining debt while paying part of it, the period may start running anew because of that acknowledgment, so keep such documents together separately.

The longer you have dealt with a partner, the more you tend to put off demanding payment. If you establish a practice of exchanging receivable balance confirmations every quarter, you can manage limitation periods without harming the relationship. If you have claims that are already close to 3 years old, we recommend considering a payment order or provisional attachment first, even if the amounts are not large.

Provisional attachment both stops the limitation period and freezes the other party's property. If you hear rumors that a business partner's situation is deteriorating, that is one more reason to move quickly, regardless of the limitation period.