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More Singapore SMEs paying debt on time in Q2, led by building sector: Experian

MORE small and medium-sized enterprises (SMEs) in Singapore are paying their debts on time in the second quarter of 2019, boosted by construction sector activities, according to an Experian report.

A healthy pipeline of activity within the construction sector led to significant improvement in debt settlement compared to Q4 2018, when the sector was plagued by a high volume of delinquent payments, said Experian.

An average of 47 per cent of SME debt was paid on time, up from 38 per cent in 2018's fourth quarter.

This was the best performing quarter for local SMEs since the first quarter of 2017, where 52 per cent of SME debt was paid on time.

It was largely due to more timely payments from the retail and manufacturing sectors, while only 16 per cent of construction sector firms were more than 90 days delinquent in their debt payments, versus 35 per cent in Q4 2018. 

Despite retail and manufacturing having the largest increase in on-time payments of between 12 and 13 per cent versus construction's 11 per cent, the construction sector saw major improvements in areas such as payments that were more than 90 days late decreasing by 19 per cent versus Q4 last year.

Settlement timeline for construction also decreased to 39 days, down 20 days from the fourth quarter's 59 days.

The increased number of timely payments within the retail sector is a possible effect of a shrinking retail market, said Experian.

"To remain competitive in a challenging business environment, retail businesses are now taking on less inventory to
improve their flexibility and agility to market, carry less debt, and allowing them to pay creditors in a timelier manner."

As for manufacturing, a protracted slowdown in growth is a likely byproduct of ongoing US-China trade tensions. It is hitting companies' bottom lines and putting manufacturers under increasing pressure to pay within credit terms, said Experian. 

The Days Turned Cash national average – a measure of the debt settlement timelines among SMEs – saw significant improvement led by construction and retail, which saw decreases of 20 and six days respectively.

Construction sector growth "may be well set to continue throughout 2019", said James Gothard, general manager, credit services, SEA, Experian.

The easing of rules around public projects may have enhanced the competitive ability of SMEs in the construction sector, potentially enabling a higher number of smaller firms to bid for public sector projects, he added.

Mr Gothard was citing revised rules introduced in June 2018 that included exempting companies with annual revenues below S$5 million from producing audited financial statements and removing the need to affix company stamps on certain tender-related documents.

Conducted on a biannual basis, the Experian report analyses payment patterns of more than 120,000 companies in Singapore across eight major sectors – retail, wholesale, construction, hospitality/food and beverage, information and communications, manufacturing, services, and transport/storage.

The latest report analyses the first two quarters of 2019.

Earlier in July, the Singapore Commercial Credit Bureau reported slower payment of bills among Singapore firms. While manufacturing sector saw the largest increase in slow payments quarter on quarter out of the five sectors surveyed, retail and construction saw decreases in slow payment.