Bad debt among SMEs falls in Q3 due to tightening credit terms: DP Info

THE level of bad debts among small and medium enterprises (SMEs) fell in the third quarter of 2016, as credit terms between SMEs and their customers continue to tighten, said DP Information Group on Wednesday.

The percentage of debt unpaid after falling due dropped to 46 per cent in Q3 2016, down from 48 per cent in Q2 2016 and 49 per cent in Q1 2016.

The steady drop in delinquent debts during the last six months is due to SMEs demanding faster payment from their customers when agreeing to do business on credit, DP Info said.

Notably, the manufacturing industry has seen the most significant drop in companies with delinquent debtors - from 76 per cent in Q1 2016 to 65 per cent in the third quarter. The commerce-retail sector has the lowest percentage of delinquent debts with only 21 per cent unpaid in Q3. This reflects a policy of many companies to demand prompt payment from retailers and to "vigorously pursue" money owed to them by retailers, DP Info said.

Nick Boyle, managing director of Southeast Asia and emerging markets of Experian, said tighter credit terms can lead to cash-flow problems for SMEs. As it is, more SMEs have had to place larger deposits on any purchase of goods or services, as well as accept a shorter debt-settlement period, for the last two quarters, he observed.

"A reduction in trade credit access can impact the cash flow of a business operation, and companies will find it hard to achieve growth without sufficient liquidity," he said. "We are also seeing greater pre-emptive action by SMEs to avoid being landed with bad debts. This includes more frequent credit checks and the sharing of payment intelligence between SMEs through the DP SME Commercial Credit Bureau."

Singapore companies took an average of 29 days to pay their bills after the debt had become due in Q3 2016. The national average of such a measure - known as Days Turned Cash (DTC) - has been at 29 days for each of the three quarters this year.