SMEs scramble to pay debts on time as creditors roll out tighter lending checks

Q3 was one of the fastest payment cycles in the last five years.

SMEs in Singapore are scrambling to pay their debts on time as creditors become smarter about lending controls and credit checks.

According to the Days Turned Cash National Average (DTC) - a tool for measuring the number of days a company takes to pay its creditor – Singapore SMEs took an average of just 36 days to pay their debts during the third quarter of 2014. This is one of the fastest payment cycles in the last five years.

The DTC payment data was released by the DP SME Commercial Credit Bureau. The findings are based on the payment behaviour of more than 120,000 corporations and SMEs in Singapore each quarter.

“The faster cycle of payment among SMEs is a good sign as it improves the cashflow position of companies. If SMEs have more money in the bank, they have more resources to fund growth and working capital needs,” said Ong Siew Kim, Senior General Manager of DP Information Group.

SMEs in the Electronics sector recorded the largest improvement in payment speeds, taking an average of seven fewer days to pay a debt than they did in 2Q2014. The feedback from SME managers working in the electronics sector is that the uncertain outlook has prompted companies to pay more attention to payments as the fall due.

The Construction sector is also paying faster compared to the previous quarter. The market for sales of new properties remains subdued, so creditors are paying more attention to outstanding invoices.

The Government infrastructure projects have boosted the earnings of sub-contractors in the construction sector, and with more money coming in, they are quicker to pay out their debts.

Payment speed in the Commerce-Wholesale sector slowed slightly. This sector is particularly exposed to changes in international trading conditions. While the growth outlook for the US and the UK remain healthy, there are growing concerns in the Euro zone as the German economy appears to have stalled.

Emerging giants such as Brazil, China and Russia are all recording slower rates of growth. These factors combined may explain why trading companies are holding on to their cash for as long as possible.