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The need for SMEs to go digital

SMEs remain hindered by poor cash-flow visibility issues primarily caused by reliance on manual processes and payment methods.

Singapore kicked off the FinTech Festival at Fusionopolis on Nov 14, 2016. The 2016 Cash Flow Visibility Index conducted by Visa revealed that corporates in Singapore typically make a payment run twice a week, where a payment run takes 9.1 hours to prepare internally followed by another 4.5 hours for the bank to process.

SINGAPORE is leading the Asean region by embracing cashless and contactless payment options.

According to a recent report by Euromonitor, almost 60 per cent of all Personal Consumption Expenditures (PCE) in Singapore is conducted electronically. In addition, contactless transactions make up more than 40 per cent of all Visa face-to-face transactions, signalling Singaporeans' preference towards going cashless.

The great strides made by Singapore in its adoption of electronic payments is partially due to the government's continuous push for Singapore to become a Smart Nation, an initiative aimed to improve efficiency among small- and medium-sized enterprises (SMEs) and corporates by encouraging business processes to be conducted electronically to enhance automation, real-time payments, powerful computing and analytical tools. The initiative also supports the use of technology among citizens by encouraging the adoption of electronic payments over cash, prompting Singapore to evolve into a cashless society.

Room for improvement

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However, there is still much room for improvement for SMEs to go digital and automate payment processes.

A recent report released by The Committee on the Future Economy (CFE) outlined seven strategies for the government, corporates, SMEs and citizens to take the economy forward over the next 10 years.

These strategies, which heavily emphasise the need for more investment in technology, include recommendations for businesses to build strong digital capabilities and further deepen and diversify global connections. It also calls for more public and private partnerships to enable further growth and innovation, especially in technology and digitalisation.

As for payment technology and processes, Singapore has established itself as a serious global contender in FinTech innovation with the establishment of Lattice 80 and launch of the Singapore Fintech Festival in 2016. More work needs to be done by local businesses (99 per cent are SMEs) in order for Singapore to cement itself as a global leader.

SMEs continue to face challenges in improving financing and cash-flow visibility.

While Singapore is benefiting from digitalisation and growth of electronic payments, Singapore SMEs remain hindered by poor cash-flow visibility issues primarily caused by reliance on manual processes such as extensive use of traditional invoicing and payment methods. One way to overcome these challenges is to automate payments and leverage innovative payment solutions available in the market to improve efficiency. These changes in business processes are aligned with the government's initiatives to digitalise the economy.

Tedious and manpower-intense processes are affecting the productivity of SMEs and corporates. Visa conducted the 2016 Cash Flow Visibility Index to better understand challenges that organisations face with managing cash-flow, enhancing visibility of their cash, improving cash forecasting and engaging with their transaction banking partners and their cash solutions.

The study revealed that corporates in Singapore typically make a payment run twice a week, where a payment run takes 9.1 hours to prepare internally followed by another 4.5 hours for the bank to process. The long hours involved, coupled with tedious manual preparation processes, signal that there is huge room for growth in terms of improving business payments efficiency.

The optimal solution, which is an opportunity for payment networks and solution providers, is for SMEs to further automate their payments processes. This would make payment runs more frequent, with faster cycles processing lower volumes in each run. Higher levels of automation also allow for payments to be conducted in real time.

In fact, the same study showed that most businesses fully appreciate the benefits of enhanced cash flow capabilities derived from the ability to send and receive payments in real time. Singapore companies say they will pay 17 per cent more for the ability to receive payments in real time, while their payables team would be willing to pay a 9.7 per cent premium on top of their current costs for real-time payments.

One way for SMEs to achieve higher levels of automation and improve cash flow visibility is to use payments solutions catered to conducting fast and real-time transactions for purchases such as raw materials, services and utilities.

Based on the study by Visa in 2016, only one in three businesses currently hold a credit/charge card with their primary domestic business bank. Furthermore, cards account for less than a third of total payments across all categories, as there is still high reliance on cheques and electronic transfers. This suggests that there is significant room for SMEs to improve efficiencies through the use of payment cards and associated services such as cloud-based procurement platforms.

Banks should also look at forming partnerships with payments providers to offer effective and value-added solutions that are customised or relevant for these SMEs.

Good examples of value-added solutions for SMEs include cloud-based solutions that move manual processes such as B2B procurement and vendor payments through a digital platform.

Overall, widespread dissatisfaction with international and cross border payments, desire for enhanced data, demand for quicker payments and continued retention of legacy payment methods mean there is a strong need and opportunity for Singapore SMEs and corporates to use digital payments. With these companies adopting more electronic payments, they can then look forward to a business environment where swift, simple and secure business processes can improve overall business health and propel the country towards becoming truly cashless.

  • The writer is head of B2B Partnerships, Asia Pacific, Visa