Singapore SMEs Imposing Stricter Controls on Credit

SMEs in Singapore are getting smarter about which companies they extend credit to and how much they allow.

According to the Days Turned Cash National Average (DTC) - a tool for measuring the number of days a company takes to pay its creditor – Singapore SMEs took an average of just 36 days to pay their debts during the third quarter of 2014.  This is one of the fastest payment cycles in the last five years.

The DTC payment data was released by the DP SME Commercial Credit Bureau (the Bureau). The findings are based on the payment behaviour of more than 120,000 corporations and SMEs in Singapore each quarter.

According to  Ong Siew Kim, Senior General Manager of DP Information Group (DP Info), the improvement in payment behaviour is due to tighter credit terms and the vigorous pursuit of debts.

“SMEs are now imposing strict controls on credit and undertaking a greater number of credit checks through the DP SME Credit Bureau in order to reduce the risk of a default on a debt.”

“The faster cycle of payment among SMEs is a good sign as it improves the cashflow position of companies.  If SMEs have more money in the bank, they have more resources to fund growth and working capital needs,” Ong said.

SMEs in the Electronics sector recorded the largest improvement in payment speeds, taking an average of seven fewer days to pay a debt than they did in 2Q2014.  The feedback from SME managers working in the electronics sector is that the uncertain outlook has prompted companies to pay more attention to payments as the fall due. 

The Construction sector is also paying faster compared to the previous quarter.  The market for sales of new properties remains subdued, so creditors are paying more attention to outstanding invoices.  The Government infrastructure projects have boosted the earnings of sub-contractors in the construction sector, and with more money coming in, they are quicker to pay out their debts.

Payment speed in the Commerce-Wholesale sector slowed slightly.  This sector is particularly exposed to changes in international trading conditions.

While the growth outlook for the US and the UK remain healthy, there are growing concerns in the Euro zone as the German economy appears to have stalled.  Emerging giants such as Brazil, China and Russia are all recording slower rates of growth.  These factors combined may explain why trading companies are holding on to their cash for as long as possible.

On a year-on-year basis, the Commerce-Retail sector experienced the greatest improvement in debt payment times, from 58 days in 3Q2013 to 41 days in 3Q2014.  The Commerce-Retail sector has been facing major upheavals due to the changes to the manpower laws.

Given the uncertainty in the sector, any credit extended to retail companies is coming with strict controls and short payment periods, resulting in a significant increase in payment speed.

Healthcare/Medical and Credit-Related sectors have seen the speed of their debt payment deteriorate during the last year.

Companies in this industry said operating costs, increased competition and cashflow pressures are affecting their ability to pay on time.

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