Delayed payments from customers remains key challenge for SMEs: SPRING survey

Delayed payments from customers remains key challenge for SMEs: SPRING survey

Michelle Zhu
18/12/17, 12:56 pm

SINGAPORE (Dec 18): Managing delays in customer payments remains as a key finance-related challenge for Singapore's small-medium enterprises (SMEs) even with easy access to debt financing, according to recent findings from the 2017 SME Financing Survey by SPRING Singapore. 

Now in its second edition, the 2017 SME Financing Survey involved over 1,800 SME respondents across various industries, revenue bands and stages of development, and was conducted by SPRING Singapore in partnership with Dun & Bradstreet between June and Sept this year.

This year’s findings revealed that a majority (90%) of the 13% of SMEs which sought external financing in the past year were successful in their applications.

These largely comprised larger SMEs, which SPRING says are more likely to seek external financing given their growth needs and higher approval rate for debt financing.

The most commonly cited purpose by over 60% of SMEs that sought external financing in the year to date was for cash flow management, with bank loans as the most popular form of external financing across SMEs of all sizes, industries and stages of development.

Meanwhile, micro companies with revenue below $1 million appeared to face lower approval rates, which SPRING attributes to the lack of financial documents and/or weaker business performance, such as insufficient revenue to justify the quantum of financing requested.

A majority 87% of SMEs surveyed which did not turn to external financing indicated that they had sufficient funds to operate, while a 9% indicated a personal preference not to borrow.

Nonetheless, it was found that three in five SMEs (64%) currently face some form of delay in receiving payments from customers, which they also continue to rank as the top-finance related challenge they expect to face in the coming year.

In a press release last Friday, SPRING Singapore highlights the issue of managing delayed payments as a consistent finding across various recent surveys and studies – including PricewaterhouseCoopers’ 2017 Singapore Working Capital Study, which showed that local businesses generally took about 41.5 days to convert working capital to revenue in terms of net working capital days.

See: Why size matters in Singapore's business environment

While acknowledging that external financing can help bridge gaps in payment cycles in the short-term, SPRING recommends that SMEs strengthen their cash flow management capabilities to improve their long-term resilience and competitiveness.

The agency also suggests that SMEs turn to other sources of help made available online, such as the PwC-SPRING Working Capital Study interactive tool, to benchmark their financial performance against industry peers.

“No business can operate successfully without effective cash flow management. Even profitable companies can go under if their cash flow is not well managed, which may result in them being unable to meet their financial obligations. To better manage cash flow, SMEs can put in place regular reviews and controls on financial reporting so that any potential issues with billing, cash collection and credit terms with customers can be promptly addressed,” comments Chew Mok Lee, Assistant Chief Executive, Capabilities & Partnership Group of SPRING Singapore. 

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