Hello, I’m Seungjoo Hwang from the Finance & Accounting Team,
and I’ll be delivering the final part of the SERVEONE MRO Process Course on Debt and Credit Management
I’ll explain the process of managing accounts receivable generated from sales settlement,
accounts payable generated from purchase settlement,
as well as credit management for client companies
and SERVEONE’s process for handling debt payments
The lecture will proceed in Debt Management, Payment Management, Credit Management, and Credit Control order
Before we begin, let me briefly introduce myself
I joined SERVEONE in 2022 as an experienced hire
Before that, I worked at LG CNS for nearly ten years
I left the company to focus on childcare, so there was quite a long career gap
Fortunately, I had the opportunity to join SERVEONE,
and now that my daughter is in high school, I’d say I’m about halfway graduated from parenting
This photo was taken when I went to Universal Studios Japan with my daughter
We wore her Harry Potter uniform from morning till night,
and we took this favorite photo in the same spot, once during the day and once at night
Because I had her early and raised her early, she now feels more like a friend, and life has become much easier
Let’s begin the lecture
The first topic is Debt Management
At SERVEONE, which distributes goods, sales and purchase settlements
occur according to the flow of inventory
From these, accounts receivable arise for the sales settlement amount,
and accounts payable arise for the purchase settlement amount
As you learned in the Settlement section earlier,
the timing of SERVEONE’s purchase settlement
is recognized differently depending on the delivery type
At the moment purchase settlement takes place, the goods are recognized as SERVEONE’s inventory,
and an amount payable to the supplier is created, which is scheduled for monthly payment by supplier
Let me briefly explain the journal entries related to purchase settlement
At the point of goods receipt or delivery completion,
an entry is recorded with Inventory and GRIR
which is a temporary account used in SAP
This reflects the increase in inventory assets
At the point of purchase settlement, the entry is made with GRIR
and AP, where AP stands for Accounts Payable
GRIR, short for Goods Received/Invoice Received, is only a temporary account
Once settlement occurs after receipt
the debit and credit entries offset each other, and disappears
For reference, when sales settlement takes place,
the goods are recorded on the credit side as they leave inventory,
and they are recognized as Cost of Goods Sold
and an Account Receivable (AR) is generated for that sales value
I’ll explain this part in more detail later
Here is the purchase settlement schedule
For all deliveries completed from the 1st to the last day of the month,
tax invoices are collectively reverse-issued on the second business day of the following month
By principle, a tax invoice must be issued by the supplier
When the seller issues it, it is called a normal issuance
But in this case, the buyer,
SERVEONE, issues it, so it is called a reverse issuance
Normal electronic tax invoices are automatically reported to the National Tax Service
For reverse-issued invoices, however, the supplier,
the party receiving the invoice, must approve it before it is reported
By principle, if we relied on normal issuance,
we would have to manually monitor every case where a supplier either failed to issue an invoice
To prevent this, SERVEONE automatically pulls delivery-completed data from the system
and issues reverse tax invoices on behalf of suppliers
We then remind them to approve these invoices by the statutory deadline,
the 10th of the following month, as required by VAT law
For invoices that have been approved, promissory notes are issued on the regular payment dates,
the 13th or the 30th
Purchase carryover can be processed if a supplier mistakenly marks a delivery as complete,
as long as the correction request is made by the first business day
Settlement adjustment means that if the accounting month recorded in the financial statements
differs from the month of the tax invoice,
the accounting is aligned to match the tax reporting standard
Cases like missed delivery completion, missed hub receiving,
or a return sales settlement overlooked by the operations manager can all cause issues
If a return occurs but the return sales settlement is not processed,
then the return purchase settlement cannot be carried out
This, in turn, becomes a reason for a settlement adjustment
For example, let’s say the purchase record in January is 110,
and in February a return settlement of –10 is recorded
In reality, that return actually happened in January,
but because the return sales settlement was missed in January,
the return purchase settlement was also processed in February
In this case, the actual purchase tax invoice should have been 100
So, through a settlement adjustment, the February accounting record of
–10 is reassigned to January for tax documentation,
ensuring the VAT attribution is correctly applied to January
Some of you may be curious about purchase accounting entries,
so let me briefly explain
When goods are purchased and payment is made,
the final journal entry records inventory assets on the debit side,
input VAT also on the debit side,
and a reduction of cash assets on the credit side
This happens
At SERVEONE, accounting journal entries are generated at each stage of the process
When goods are received, inventory assets increase on the debit side,
and a temporary account called GRIR is recorded on the credit side
At the time of purchase settlement, the system recognizes,
“Now we owe the supplier money,” so Accounts Payable (AP) is posted on the credit side,
and the GRIR temporary account is reversed on the debit side
This way, the GRIR account is offset and cleared out
For each order, purchase settlement entries are created,
and these are then summed up monthly
when issuing a tax invoice
For example, if settlements
occur as 10, 20, and 30,
the total is 100
The tax invoice is issued for 100,
and payment is made including VAT, so 110 in total
At this stage, the Accounts Payable generated when processing the tax invoice
becomes the actual liability to be paid
The debit-posted temporary purchase account
is offset against the AP from the purchase settlement entries
That’s the overall flow
When the actual payment is made,
the payment entry is cleared, and cash is disbursed
At the time the tax invoice is processed,
the debit side records Input VAT
which later becomes the basis for the quarterly VAT filing
In addition to liabilities created from normal product purchases,
there can also be deficit-related liabilities or seized liabilities
A deficit liability refers to
a negative tax invoice issued due to purchase returns
In practice, this becomes a receivable from the supplier, money the supplier owes back
Since many suppliers are relatively small businesses,
special attention is required to ensure collection,
as there is always a risk of uncollected receivables
A seized liability occurs when a supplier’s assets are legally seized
If a creditor files a lawsuit
and the supplier’s assets are seized,
the court will notify SERVEONE
If SERVEONE were to pay the supplier despite the seizure,
the payment would be invalid, creating a risk of double repayment
Therefore, when seizure documents arrive by mail,
SERVEONE registers them in the legal portal,
and all liabilities to the supplier are
withheld until the seized amount is fully settled
When a seizure occurs, the debtor is the supplier who owes money to the creditor,
and SERVEONE becomes the third-party debtor
The seizure notice means: “Do not pay the supplier”
The collection order means: “By law, pay the creditor instead”
If the creditor is unknown, SERVEONE may deposit the funds with the court
In cases where the seizure is due to unpaid taxes, once the tax office issues a release notice,
SERVEONE lifts the payment hold and pays the supplier
Here’s an explanation of VAT: Taxable, Zero-rated, and Exempt
Most transactions are taxable
Zero-rated VAT applies to cases such as
direct exports or local exports, where foreign currency is earned
A zero rate means the tax rate is 0%,
and this classification depends on the distribution channel
In the S-MRO system, when checking the operating unit,
if the distribution channel is set to Local Export or Direct Export
Since foreign-currency earning transactions fall under the zero-rated category,
if the sales settlement is zero-rated, then the purchase settlement must also be zero-rated
To qualify, you need export documentation such as a Purchase Confirmation,
a Domestic Letter of Credit, or an Export Declaration Certificate
These export-related documents are issued by the Accounting Department’s import/export team
VAT-exempt means the transaction is entirely outside the scope of VAT
The VAT Act specifies which goods and services qualify
At SERVEONE, common VAT-exempt items include
laboratory mice, though imports are taxable
Or plants and floral arrangements, items sold via e-commerce malls like V-Members,
meat, diapers, good supplied to non-taxable organizations
such as welfare foundations for the disables
Under the VAT Act, a tax invoice must be issued
and payment made at the time goods are supplied
However, in some cases payments are split into
advance payments, progress payments, and final payments
The VAT Act allows this under the conditional installment payment rule,
which recognizes the issuance of tax invoices
at each stage of payment
This approach is typically used for large-scale transactions such as equipment or machinery,
and it must be reviewed from the contract stage
Currently, as the risk is considered too high,
SERVEONE does not engage in 100% advance payments
Conditional acceptance means that the supply date is not when the goods are delivered,
but when inspection has been completed, at which point the tax invoice is issued
This method is used for transactions that require inspection, such as test runs,
and is applied by entering into a separate agreement with the supplier
If the test run process is applied,
the customer cannot complete inspection until it is done, so sales settlement cannot proceed,
and suppliers are also unable to process delivery completion
If SERVEONE proceeds with purchase settlement before sales settlement is possible,
consigned inventory increases
and cash flow is negatively affected
Therefore, it is advisable to execute a contract with the supplier and follow this process
Payment management refers to handling liabilities incurred from purchase settlements
At SERVEONE, payment conditions differ depending on
whether the supplier is classified as a subcontractor
Suppliers are required to log in directly to
the supplier front-end system using a certified digital signature
and check whether they fall under subcontracting
Once the classification is finalized,
subcontractors must be paid within 60 days
and non-subcontractors are paid within 120 days
A supplier is considered a subcontractor if it is not a large enterprise
and is engaged in commissioned manufacturing or processing work
The method of payment to suppliers is primarily through bill issuance,
and SERVEONE settles payments using a purchase card,
which is essentially a form of electronic promissory note
For subcontracted suppliers,
zero-rated transactions are paid within 14 days and tax-exempt transactions are paid within 60 days
For non-subcontracted suppliers, the standard payment term is 120 days
However, some long-standing partners may still operate under a 90-day term
The payment period is calculated based on the date of the tax invoice,
the end of the purchase settlement month,
determined by the bill issuance date plus the bill maturity period
SERVEONE issues bills on the 13th and 30th of each month
For example, for deliveries made in April,
the tax invoices retroactively issued on April 30
are matched with bill issuance on May 13
Bill maturity is 1 day for 14-day terms
47 days for 60-day terms
77days for 90-day terms
In other words, the maturity is counted from April 30,
so that the bill can be cashed on the correct due date
Since the maximum maturity under the Bill of Exchange Act is 90 days,
bills for 120-day non-subcontractor payments are issued on the 30th
For reference, the first digit indicates the payment condition type
The standard payment condition is 6
The second digit represents the issuance date information
B means regular issuance, i.e., on the 13th or 30th
The last two digits indicate the number of payment days, which is the most important part
14, 60, 90 are directly correspond to the number of days
120 days is written as C0, since it’s a three-digit number
Here, 10 = A, 11 = B, 12 = C,
so 120 is written as C0
Since SERVEONE operates as a distributor, by the payment terms of the client companies,
the payment terms for partners are often influenced
So while the basic terms are determined by whether the partner is classified as subcontractor or non-subcontractor,
the payment condition type, issuance date, and payment days may also vary
depending on which business unit receives the delivery
Unlike payments for the purchase of goods supplied to clients,
general expenses are handled on a cash payment basis
For example, if there is an urgent courier shipment and extra courier fees occur,
or if a fee needs to be paid for a specific site or service,
an electronic tax invoice is issued and entered into e-Accounting
These liabilities are then paid in cash through firm banking
Amounts under 10 million KRW are paid on the 25th of the following month
Amounts over 10 million KRW are paid on the 30th of the following month
The payment schedule is calculated based on the end of the month,
meaning payments follow 25-day or 60-day terms
However, IT expenses and 3PL logistics fees follow a 90-day payment rule
For general expenses, including employee welfare costs,
regular payment dates are
the 10th, 15th, 25th, and 30th of each month
If a payment needs to be made earlier than SUBONE’s standard payment terms,
a request for expense payment schedule adjustment must be submitted
When a supplier requests, “Please pay by note instead of cash,”
a purchasing card is issued on the 13th,
with a maturity date matching the standard cash payment terms
Even when a supplier’s payment obligations arise,
there are cases where we will withhold payment
If the delivery proof is not valid,
the item is scheduled for return, the delivery completion was processed incorrectly,
a claim has been filed,
or received a seizure notice, as explained earlier
For all transactions from the 1st to the end of the month,
settlement is carried out in early the following month
The payment obligation is created, so by about the sixth business day,
any request for payment holds must be formally submitted
Then, those cases are excluded from purchasing card issuance on the regular 13th payment date
In addition, when a partner is also a customer,
under Article 24 of the basic transaction contract,
the amounts payable and receivable are first offset,
and only the balance is paid or collected
In some cases, receivables and payables are offset through separate agreements
The expenses processed in e-Accounting
go through approval by the Finance & Accounting team, after which a payment liability slip is created and the payment is made
Let me share a few typical cases where requests are often rejected
When handling expenses in the future,
please keep these in mind and check the expense processing regulations accordingly
Business trip expenses must be processed per trip
Even if you travel repeatedly to the same region,
expenses should be recorded in 7-day segments within the schedule
In addition, meal expenses during business trips are only recognized
up to about 10,000 KRW per person per meal
When multiple travelers dine together, you must list
the travelers’ names in the trip request form or the expense report
Meals with local SERVEONE employees at the destination should be processed as organizational activity expenses,
and meals with clients or external parties should be processed as entertainment expenses
Highway tolls, parking fees, and the use of car-sharing services such as SOCAR
must always be accompanied by supporting receipts
In addition, tax invoices must be processed by the first business day of the following month
If they are not processed within this period, you must obtain a separate approval
I will now explain the accounts receivable generated from sales
First, let me outline the standards for recognizing revenue
According to accounting standards, when a company recognizes revenue,
it can either record the full transaction amount as sales
or only recognize the commission portion
Since SERVEONE mainly operates by purchasing goods
from a third-party supplier and providing them to customers,
if it is acting as the actual contracting party,
gross revenue recognition is possible
But, if it is acting only as an agent,
then only the commission amount can be recognized as net revenue
If the purchase cost of a product is 90 and the selling price is 100,
under gross recognition, 100 is recorded as sales, while under net recognition, only 10 is recorded
Currently, most of SERVEONE’s product supply transactions are recognized as gross sales
But, in cases where SERVEONE does not have pricing authority, does not bear inventory risk,
acting only as an intermediary, sales must be recognized on a net basis as commission revenue
Therefore, if the transaction conditions with the customer
indicate that SERVEONE can only act as an agent,
it is best to consult the Finance and Accounting Team in advance
to confirm whether gross revenue recognition is possible
From this point onward, all processes will be explained
under the assumption that revenue is recognized on a gross basis
Similar to purchases, there are cases in sales
where settlement discrepancies require closing adjustments
For example, SERVEONE’s monthly closing is finalized on the 2nd business day
If on the 3rd business day,
a missed settlement of 10 for February occurs,
but the client requires a January tax invoice for 100,
then the February sales settlement
have its tax documentation date reclassified to January
Advance-issued tax invoices can also occur in sales
When a client requests an invoice for undelivered orders
often to utilize their budget,
SERVEONE can process this through a prepayment approval
If in January, a prepayment approval was made
and 100 was invoiced (10 + 90),
then when the actual delivery of 10 is completed in April,
the VAT is still fully recognized in January for the 100,
while only the additional 10 in sales is recorded in April
If settlement discrepancies are found after the two-business-day closing window,
they must be handled
as exceptional cases
with division head approval
Under VAT law, advance-issued tax invoices are allowed
when payment is received within 7 days,
or the contract explicitly states different billing and payment dates,
with a gap of no more than 30 days
In practice, this means you must obtain an advance-issuance agreement letter from the client
and then submit the request in S-MRO
In this case, no sales revenue is recognized, and only a receivable is recorded
Since prepayments are considered a liability,
it is important to complete settlement quickly, meaning the actual delivery of goods must take place
Sales accounting, like purchase accounting,
is generated step by step throughout the business process
Ultimately, sales are credited,
VAT on sales is recognized,
and accounts receivable are created,
which are then cleared once payment is received
When sales settlement is processed,
an accounts receivable is recorded on the debit side,
and product sales are recorded on the credit side
At the time the sales are recognized,
the inventory assets decrease,
and the cost of goods sold is recorded on the debit side
When a tax invoice is issued normally,
or when a reverse tax invoice is registered,
an accounts receivable is created on the debit side,
and a temporary sales account is recorded on the credit side
At this point, output VAT is added on the debit side
The temporary sales account and temporary VAT account are offset and eliminated,
and the payment received from the customer is recorded as a deposit received,
which is then offset against the receivable
Like this
This is about managing collection terms
Collection terms can be managed in
the S-MRO site inquiry and operating unit inquiry
When a business site is first created,
the collection terms are reflected based on the sales contract
The operating unit’s collection terms can be selected
from the collection terms registered for the business site
If an operating unit has multiple collection terms,
the operations manager can choose the appropriate term
at the tax invoice issuance stage
Since the collection terms must be set in the system exactly as specified in the contract,
any change to the collection terms requires a separate approval process,
starting with a legal review to determine if contract amendments are necessary
After issuing a tax invoice, if you wish to change the collection terms of an individual billing item,
it can be handled through a one-time approval for collection term change
If payment is not received by the due date set in the collection terms,
it is classified as overdue receivables
Every Wednesday, overdue receivables exceeding one day
are shared via email
Types of overdue receivables include
delays in cash deposits where payment has not been received,
delays in promissory note issuance where the note has not been issued,
and overdue note maturity, where the note is issued
but the due date exceeds the agreed terms
If the note issuance itself is delayed, it is classified as a note issuance delay,
and if the note has been issued but the maturity date is overdue,
it is classified as overdue note maturity
For overdue receivables, the sales representative must check the reason
and record it in the system,
and if the delay exceeds 15 days, the order will be blocked,
requiring submission of a one-time collection term change request
Receivables management and working capital management
Working capital refers to assets such as cash, deposits, notes receivable, and accounts receivable
that are highly liquid and can be mobilized immediately for business activities
To improve financial liquidity, receivables should be collected quickly,
payables should be delayed, and inventory should be sold quickly
Accounts payable turnover days, accounts receivable turnover days, and inventory turnover days
are indicators of how quickly payables, receivables, and inventory are turned over
Therefore, to increase working capital, inventory turnover days should be reduced,
accounts payable turnover days should be extended, and accounts receivable turnover days should be shortened
Finally, this is credit management
SERVEONE provides credit to customers,
meaning goods are supplied and receivables are collected after a certain period,
through transactions on credit terms
A customer’s ability to pay depends on both internal and external business environments
and their financial capacity, which can change frequently
Therefore, it is necessary to decide how to evaluate and monitor them, and how to respond accordingly
At SERVEONE, we mainly use the NICE Bizline system, formerly known as RM1,
to check and monitor customer credit information
When receiving new orders or when there is a request for increased credit,
and also during May and June each year when new customer credit information is updated,
we regularly review customer credit information
For customers with significant changes in their credit information,
we receive separate notifications,
which allows us to manage them on a daily basis
Currently, the credit limit is set based on the monthly average sales amount from the business plan,
with a weighted factor applied depending on the customer’s credit rating, ranging from 100% to 120%
Then, a multiplier of 1.1 is applied to account for VAT, and we add 30 days to the standard payment terms,
and finally, the formula divides this total by 30 days to calculate the credit limit
If the credit limit is exceeded or receivables are overdue by more than 15 days,
orders and shipments are blocked
For customers under special management, the block occurs not after 15 days
but immediately after a 2-day delay
“Special management” applies to customers with a credit rating of B or lower,
who have a history of overdue payments,
or those with a credit rating of CCC+ or below
The credit block is automatically lifted once the reason is resolved,
but it can also be manually lifted through a separate approval process
Through the S-MRO Site Management, Credit Limit Inquiry, Credit Increase & Adjustment Request menu,
you can request a credit increase or adjust the limit
The remaining credit limit refers to the initial credit limit
minus the utilized credit
Utilized credit refers to the sum of all open orders,
that is, the total value of all currently active orders,
plus all open accounts receivable (outstanding receivables)
A notification email is sent to the responsible manager once a week based on the credit utilization rate
The first alert is sent when utilization reaches 80%, and the second when it exceeds 95%,
so managers should monitor in advance to maintain control
The formula for calculating an increased credit limit can be referenced below,
and when a request for an increase is made in the system,
an approval document is generated and goes through the approval process
If you wish to transfer a credit limit between business units under the same corporation,
you can use the “Transfer/Reduction Approval” document for that purpose
This concludes the final part of the MRO Process course,
focusing on debt and receivables management
If you have any questions regarding the lecture content,
please contact Hwang Seung-joo, Senior Manager of the Finance and Accounting Team
Thank you for your attention