Monday, July 28th, 2014
SEOUL, KOREA - Daewoo International, the trading arm of POSCO Group, is moving to increase the sales share of accounts receivable without recourse as a way to reduce its debt ratio. According to company sources on July 27, it would try to sell accounts receivable worth US$4.8 billion by the year's end. Accounts receivable without recourse are those debts that the factor (purchaser of the receivable) must bear the loss if the original account debtor does not pay the invoice amount.
The amount of trade receivable that Daewoo International will sell is to rise 52 percent in two years from $3,164 million in 2012. The company's decision was based on the judgment that it would be able to cut down on the debt-to-equity ratio significantly following the introduction of the International Financial Reporting Standards (IFRS).
It is the usual practice for most large-scale general trading companies like Daewoo International to sell trade receivable from customers to the bank for cash. Up until now, the company relied on a transaction method in which it bears the loss if the original debtor fails to pay the invoice (accounts receivable with resource). With the introduction of IFRS accounting standards, however, the amount financed this way has become classified as short-term debt, which raises its debt ratio by 40-50 percentage points.
