Cautious suppliers lean on retailers to pay earlier

Singapore

RETAILERS are facing cash flow pressure as creditors turn cautious and demand faster payments amid the retail industry headwinds.

To avoid a cashflow crisis, retailers need to act swiftly, said DP Information Group, which analysed corporate payment behaviour across eight industries. To tackle the cashflow problem, it suggested retail firms work to curb overheads, rethink their business approach, assess credit needs, manage currency risks, review their purchasing plan or join a credit bureau.

According to the report, retail small-and-medium enterprises (SMEs) took just 12 additional days to settle their accounts in Q1 2016, versus the days turned cash (DTC) average of 29 days for Singapore companies. DTC refers to the number of days a company takes to pay a creditor once the debt is due.

"Some companies are telling us that it is now the norm to demand prompt payment from retail companies. It is also their policy to vigorously pursue money owed by retailers," said Lincoln Teo, chief operating officer of DP Info, pointing to unfavourable factors impacting the retail sector such as higher wages, foreign labour restrictions, increased rents and increased competition.

Mr Teo went on to say: "This has made companies more cautious when extending credit terms to a retail company. This has a negative effect on the cash flow of retail companies because they are unable to tap on suppliers' credit."

Data released last month by Singapore's Department of Statistics showed that retail sales (excluding motor vehicles) tumbled 9.6 per cent year on year in February despite Chinese New Year, after increasing just 1.4 per cent in January.

The sectors that took the longest to pay a creditor are information and communications companies (50 days), companies in the wholesale sector (44 days), and construction (38 days), DP Info's report showed.

In addition, over three-quarters (77 per cent) of retail firms settled their debt on time, which made them the most prompt payers across the industries analysed.

DP Info also flagged the hospitality/F&B sector as another industry where payment behaviour suggested problems since only one in four companies were paying their bills on time. Overall, hospitality/F&B companies took an additional 35 days to settle an account once it was due, above the national average.

DP Information suggested that retail firms might want to review their existing business approach, such as cutting their dependence on manpower or launching online retail sales, to ensure cashflow does not become an issue.

Alternatively, firms might choose to make smaller and more frequent purchases so that less of the company's money is tied up in payables and inventory, it added.