Digital vs cheque payments: SMEs want it both ways

Singapore

CONSUMERS are largely on board the digital payments train but businesses, particularly business-centric small and medium enterprises (SMEs), seem to need a bigger push to go entirely cashless or cheque-free.

Figures from the Monetary Authority of Singapore (MAS) show that 110,956 organisations had signed up for PayNow Corporate - one of the digital payment options available to businesses - as of June 30 this year.

This suggests that only about 30,000 more businesses have signed up for the service since February, when there were more than 80,000 registered, according to figures from the Smart Nation and Digital Government Office. The figures include SMEs, corporates and government agencies. According to Singstat, there were 263,900 enterprises in Singapore in 2018, of which 99 per cent were SMEs.

In January, a survey of close to 500 local SMEs by QBE Insurance also found that about a quarter of them still prefer traditional payment methods like cash and cheques. Much of the feet-dragging may lie in using cheques as a means of managing cashflow and a perception that digital payments are more open to fraud, according to some business-to-business (B2B) SMEs and industry experts.

Varun Mittal, global emerging markets fintech leader at EY, has observed some business-centric SMEs making it a business decision to stick to traditional payment methods like cheques even if they are able to make e-payments. "Many times, they have the ability to do digital payments but they still use cheques. It's because cheques take a few days to clear and meanwhile, the funds are still with you. E-payment is instantaneous - the funds are gone immediately," he said.

Ang Yuit, vice-president of membership and training at the Association of Small and Medium Enterprises (ASME), has observed the same. The advantage of cheques is that because there's a delay in clearing, it offers a buffer period before the funds are debited from the account.

That said, when it comes to collecting payment, B2B SMEs may be more keen to use digital methods, Mr Ang noted, adding that "the SME's perspective is always about collecting fast and paying later".

Singapore bottled-water maker Wanin Industries is one such firm that has started encouraging both its corporate and individual customers to pay using digital modes such as PayNow Corporate, while paying its suppliers using cheques.

It's a strategy that a number of other businesses - including some of Wanin's corporate clients - employ, according to Wanin director Eugene Tan. The firm's digital transactions are typically five-digit sums.

As to whether Wanin intends to make all payments digital eventually, he said that the firm "doesn't mind" doing so, but will have to work with its customers to "see if they are used to it". The firm's suppliers have not moved on to digital payments yet.

There is also the perception among some B2B SMEs that digital payments are more susceptible to fraud than cheques, making them wary about shifting to digital payments.

One of them is Ademco Security Group, which uses cheques to pay most of its suppliers currently, citing concerns of identity theft and password hacking.

Such risks are heightened for B2B SMEs due to the larger sums of money and larger volume of payment transactions, said Toby Koh, managing director at Ademco.

Likewise, Fong's Engineering and Manufacturing, a maker of high-end medical devices, still pays some suppliers with cheques. Only its regular vendors are paid using bank transfers.

Jonathan Phoon, executive director at wet towels producer Freshening Holdings, concurred that digital payments may be more open to fraud in some instances.

For example, online transactions can still go through even if the recipient and the bank account number do not tally, Mr Phoon pointed out.

On the other hand, for cheques, bank staff usually check that the bank account matches the stated recipient.

Still, some business-centric SMEs are keen to implement digital payments given the benefits, but with some safeguards.

For instance, Freshening Holdings has been moving towards more digital payments, which are more efficient and can be tracked.

To prevent fraud, the firm's accounting staff will cross-check the vendor's details with the bank if they are paying the vendor for the first time.

Ademco's Mr Koh said the firm will move to a fully digital payments platform next year, and is currently assessing potential cybersecurity risks before doing so.