On-time debt payment by SMEs hits 2-year low

Singapore

THE percentage of debt paid on time by small and medium enterprises (SMEs) fell to 37 per cent for the second quarter of 2017, its lowest in two years, according to research by DP Information Group (DP Info).

It fell from 52 per cent in the first quarter, and stands at its lowest level since the second quarter of 2015, where the percentage of on-time payments was 35 per cent.

The research analysed the payment patterns of more than 120,000 companies in Singapore.

While the proportion of unpaid debts went up, the percentage of severely delinquent debts - those still unpaid 90 days after they fall due - did not change at 14 per cent in Q2 2017.

However, the amount of time that SMEs take to make good on a debt has gone up.

The Days Turned Cash (DTC) National Average - a measure of the payment behaviour of SMEs - increased from 31 days in Q1 to 35 days in Q2.

The payment times increased in all industries except the manufacturing sector, which decreased its average payment time by one day.

The construction sector has the longest payment period of 55 days in Q2, up three days from the quarter before. However, it saw the best improvement in timely repayment, up 10 percentage points to 38 per cent quarter-on-quarter.

The transport/storage sector had the largest increase in payment times, taking an average of 11 additional days to pay a debt in Q2 compared to Q1 2017. It is also the sector which saw timely repayment fall the most, declining 27 percentage points quarter on quarter to 44 per cent.

The sector with the second largest increase in payment times was commerce-retail, which took nine additional days. Its on-time payment rate also went down from 56 per cent in Q1 to 40 per cent in Q2.

Sonny Tan, general manager of DP Info, said: "We are seeing an unusual pattern of fewer on-time payments, without an increase in overall defaults. This means SMEs are taking longer to pay a debt, rather than experiencing an inability to make payment."

He suggested that SMEs may be choosing to use their resources to fund business expansion instead of making prompt payments on their bills. "This behaviour indicates SMEs need the money for other things, such as funding growth opportunities in anticipation of greater demand in the second half of the year."

Mr Tan cautioned SMEs on funding their growth and inventory expansion with other companies' money.

He added: "If this pattern continues for several quarters it may have an impact on the overall cash flow position of the SME community. There is a ripple effect when a debtor company delays payment as the creditor company may also slow down its payment to companies it owes money to."