Credit Counselling Singapore, Credit Bureau Asia team up to help small businesses with credit management

FINANCIAL counselling charity organisation Credit Counselling Singapore (CCS) and credit and risk information solutions company Credit Bureau Asia's (CBA) subsidiary Dun & Bradstreet Singapore have teamed up to offer debt and credit advice to sole proprietors, partnership businesses (SPPs) and small and medium enterprises (SMEs).

The strategic collaboration aims to help financially distressed small businesses in Singapore with their credit management, addressing current gaps by raising awareness of CCS's Debt Management Programme and financial literacy education for business owners among users of Dun & Bradstreet services.

"CCS has been known for our assistance with personal consumer debts," said CCS general manager Tan Huey Min. "CBA has a pulse on the state of businesses undergoing financial distress based on the extensive data which they have of businesses and sole proprietors.

"This particular combination of strengths is ideal in working together to educate and promote CCS' debt restructuring service to business owners."

SMEs, micro and small enterprises and SPPs generally have less financial resilience due to being small and often family-run, and are less able to withstand financial shocks as they tend to have less bargaining power, Ms Tan said.

She added that these businesses also receive more limited access to liquidity and financial instruments, are often unable to achieve economies of scale, face financial constraints that limit their ability to defend their market share through branding or research and development and, perhaps most importantly, lack management depth.

They often get trapped in debt situations that they are unable to manage, Ms Tan said.

"SMEs are lured by the notion that sales are equal to cashflow, and hence are inordinately driven to generate new sales. If a company is slow or unable to turn the sales into cash collection, this could lead to dwindling cash in their bank accounts," she warned.

"In the meantime, the company pays for what it owes to other creditors. When their own funds run out, the SME borrows from banks to fund their operating expenses and to generate even more sales."

Ms Tan noted that Covid-19, which squeezed manpower and brought about a drastic drop in economic activities, has made the situation worse.

Explaining why small businesses face these issues, Ms Tan said one reason is the over-reliance on a limited pool of customers, suppliers, service providers, sub-contractors, and creditors. SMEs should consider diversification so as to spread out the risk of non-payment or non-performance of their counterparties, she suggested.

Ms Tan also said that more management collection processes are necessary. Many SMEs, which rely on "guanxi", or relationships, rather than professional judgement, practise poor management where account balances are "offset" against rolling transactions, which masks the underlying trade and complicates the collection process.

When dealing with new customers, they usually do not appreciate the credit risk they take, she noted, adding that checking their creditworthiness or collecting upfront payment could be ways to manage risk.

Finally, SMEs may sometimes apply for new loans to service existing ones, or take a part of the business loan for personal use. They should apply appropriate funding strategies and exercise financial discipline, Ms Tan said.

Through the new partnership with CBA, CCS hopes to better help small businesses target these problems.

Said Ms Tan: "CCS deems it a natural partnership, and we hope that through our respective outreach platforms, many more people will get to know of our business debt advisory services."