South Korean giant Samsung Electronics has established a KRW500bn ($450m) fund to enable tier one suppliers to borrow the money they need to pay tier two suppliers, the company has said.

The fund is to be created in June with Hana Bank, Shinhan Bank, and KB Kookmin Bank, says the Korean business news website Pulse.

Samsung has reportedly had supplier finance arrangements in place for its tier one suppliers since 2005, but promissory notes are the conventional form of payment between tier one and tier two suppliers.

The new arrangements will allow tier one suppliers to borrow a sum of money equal to their monthly payment to a tier two supplier. The money can be borrowed interest-free for up to a year, extendable to two years.

The scheme is apparently intended to enable tier two suppliers to be paid within 30 days at no financing cost to tier one suppliers.

Samsung plans to run the scheme until May 2020, and may extend the scheme beyond that date. The company will be encouraging its tier one suppliers to take advantage of the funding arrangements but not compelling them to do so.