Retail sector's cash flow tightens as creditors demand prompt payment: DP Info

SINGAPORE'S retail companies are experiencing a significant tightening of their cash flow positions as creditors take steps to protect themselves against possible defaults.

An analysis of corporate payment behaviour by DP Information Group (DP Info) shows that retail companies take the fewest days to settle a bill after it is due.

"While this may appear to indicate financial strength, in reality it shows creditors are demanding prompt payment from retail companies," the report said.

According to the Days Turned Cash (DTC) National Average - a measure of the days that a company takes to pay a creditor once a debt is due - retail SMEs took just 12 extra days to settle their accounts in Q1 2016.

This compares to the DTC National Average of 29 days, calculated across eight industries.

A high 77 per cent of retail companies settled their debts on time, making them the most prompt payers of any industry.

Lincoln Teo, chief operating officer of DP Info, said that the tight payment times are an indication of the concern that other companies have when providing credit to retail companies.

"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.

"Several unfavourable factors are impacting the retail sector including higher wages, foreign labour restrictions, increased rents and increased competition. 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 - a common short-term financing approach used to ease their cash flow.

"The tough conditions in the retail sector are confirmed by other research published by DP Info. According to the quarterly SBF-DP SME Index, the level of optimism of retail SME companies has been declining since the start of 2015 to the point where retail SMEs do not expect any significant growth in their businesses during the next six months."

Mr Teo said that the quicker retail companies responded to the tightening of credit and cash flow in their industry, the more likely they were to survive.

The sectors that took the longest to pay a creditor once a debt is due are: information and communications companies (50 days); commerce companies (44 days); and construction (38 days).