Stalled Western economies and Eurozone crisis continue to affect Singapore

Singapore payment default rate fails to improve as economy slows.

With the latest economic figures showing that vital export markets, particularly in Europe and the USA, are still struggling to make any real progress, it’s of little surprise that our own economy in Singapore recently recorded a contraction of 1.5% for the third quarter, narrowly avoiding a ‘technical recession’. With depressed export markets creating reduced demand and a recent slowing of Singapore’s extensive manufacturing base, there has been talk of whether the Monetary Authority (MAS) should relax its monetary policy and weaken the Singapore dollar (SGD) to make exports less expensive.

With all economic information such as this, it’s always important to look behind the headlines and statistics to get a clearer picture of what’s really happening and explore how the economic environment is affecting Singapore businesses.

The latest Atradius Payment Practices Barometer focuses on the key economies in the Asia Pacific region and provides one method of exploring the current business environment, looking at payment practices, how companies trade and what issues are present.

Singapore payment default rate fails to improve

Of all Asia Pacific markets, Singapore recorded the highest export payment default rate of 7.3% and the second highest domestic default rate of 7.0%. This is quite a marked deterioration over the export and domestic figures recorded 12 months ago, where they were shown as 4.3 and 4.4% respectively. These current results are also around 2% higher than the individual averages for the APAC region and for North America, while they’re more than 4.0% higher than those reported for Europe.

If nothing else, this provides further evidence that export trade has become more challenging, not just for Singapore but also across all major APAC countries. Hong Kong, India, and Australia’s export default rates all fall within a band between 5.7% and 7.1%, which are higher than 2011.

For businesses in Singapore, the picture on late payments provides little comfort with 31.3% of domestic and 33.6% of foreign business invoices remaining unpaid after the due date. Of these, 53.5% are more than 16 days overdue. This is slightly higher than the average for the APAC region of 50.1%, with the corresponding average figures for Europe and North America coming in at 47.9% and 50.8% respectively. Slightly better news comes from Singapore’s DSO (days sales outstanding), which at an average of 47.4 days is broadly in line with the 44-day average for the APAC region, while North America and Europe produced respective figures of 42.7 and 48.9.

However, when Singaporean companies were asked whether their DSO levels had changed over the past 12 months, more than 35% said that they had experienced an increase, which is almost five times the number of those that reported a reduction. This suggests that payment delays are not only a common feature across Singapore and APAC generally but they are also on the increase.

The effect of delayed payments

It would be simple to view these figures as general statistical information, yet the impact on businesses as a direct result of payment delays and defaults can be significant. In addition to the extra costs associated with the collection of late payments, the financial strain and cost of the delayed cash flow and increased capital provisioning can notably affect a business’ performance and that is before the impact of a bad debt is considered.

To encourage early payment and reduce credit risk, more than 60% of Singapore companies use payment discounting even though this is not always acceptable to purchasers.

This can have the effect of reducing sales if it is not accepted or profitability if a large discount is provided. A more economical solution is the use of credit insurance to help improve cash flow and protect businesses from the risk of payment delays and default and to improve businesses as part of their credit management process.

To explore how credit insurance can help support your business, please e-mail me at michael.frigo@atradius.com.

Also, if you’re keen to find out more about payment practices in Singapore and around the globe, visit www.atradius.sg