Delinquent debts down but SMEs feel cashflow squeeze

DP Info poll shows Q3's proportion of unpaid debt improved to 46%; firms citing credit crunch jump to 34%

Singapore

DELINQUENT debts have steadily declined in the last six months, as small and medium sized enterprises (SMEs) demand faster payment from customers when they agree to do business on credit.

The proportion of debt unpaid stands at 46 per cent in the third quarter of the year, down from 48 per cent in Q2 and 49 per cent in Q1, according to research released on Wednesday by DP Information Group (DP Info), part of the Experian Group of companies.

The sector with the highest proportion of delinquent debts was construction at 72 per cent, followed by hospitality/food & beverage at 71 per cent, and information & communications at 67 per cent.

The manufacturing industry registered the biggest drop in delinquent debts, from 76 per cent in Q1 to 65 per cent in Q3.

The sector with the least delinquent debts was commerce-retail, at just 21 per cent. According to DP Info, this is the result of many companies demanding prompt payment from retailers and "vigorously" pursuing money owed to them by retailers.

Lower delinquent debts may be a good thing, but tightening credit conditions are taking its toll on SMEs' cashflow.

In a separate survey by DP Info earlier this month, 34 per cent of SMEs said that suppliers' tightening of credit access was an issue for them, up from 27 per cent last year.

Some 7 per cent cited cashflow problems as one of their key business concerns this year, up from 4 per cent previously.

Nick Boyle, Experian managing director, SEA & emerging markets, said: "When a company has its credit terms tightened, the normal reaction is for that business to do the same to its creditors. As a result, the availability of credit may contract across the entire SME community, greatly impacting the number of business transactions.

"A reduction in trade credit access can impact the cashflow of a business operation, and companies will find it hard to achieve growth without sufficient liquidity."

He observed that the trend for the last two quarters was that SMEs had to place large deposits on any purchase of goods or services, as well as accepting a shorter period for the settlement of debt.

There has also been greater pre-emptive action by SMEs to avoid being landed with bad debts, which include more frequent credit checks and the sharing of payment intelligence between SMEs, he added.

The number of days that Singapore companies took to pay their bills after the debt is due - known as the days turned cash (DTC) national average - remained at 29 days in Q3, unchanged from the previous two quarters.

There are, however, notable changes in payment patterns across industries.

Retail companies are paying their bills after just 10 days, indicating the very short credit terms many of them are being offered by suppliers.

Construction companies continued the trend of slower payment behaviour this year, taking five days longer to settle their bills in Q3 at 31 days. DP Info suggests that given the slowdown in private projects, it may be a sign of "challenging times ahead" for the construction sector.

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