Small- and medium-sized enterprises struggle amid debt collection woes

90-day old debts to SMEs spiked to 24%--the highest in two years.

According to DP Information Group, the time it takes for SMEs to get paid by their creditors has hit a two year high, indicating SMEs are starting to find it harder to collect on their debts.

Here's more from DP Information Group:

The Debts Turned Cash (DTC) National Average - a tool for measuring the number of days a company takes to pay its creditor once the debt is due – has spiked 5 points to 46 for the second quarter of 2012. Previously, the DTC Average had remained steady for the past 12 months.

The DTC National Average was developed by the DP SME Commercial Credit Bureau (the Bureau), and is based on payments made by more than 120,000 companies and SMEs in Singapore each quarter.

And it is the long-term debts that are causing the overall payment speed to slow down. The percentage of debts that remain unpaid after 90 days is 24 per cent – the highest it has been since 1Q2010.

This continues a trend seen last quarter (1Q2012), when debts older than 90 days sharply increased from 18 per cent to 23 per cent.

The percentage of shorter term debts of between 1 and 90 days fell, from 69 per cent in 1Q2012 to 64 per cent in 2Q2012. This is due to more debts remaining unpaid for longer periods.

Ms Ong Siew Kim, Senior General Manager of DP Information Group said the slowdown in payment times was a concern for SMEs.

“Slow payments have a ripple effect – once payments start to slow, more and more companies begin to hold back payments while they try and collect their own debts.”

“While we are not seeing the same level of long term debt as we did during the financial crisis, the trend is heading that way. The amount of long term debt hit its peak of 31 per cent in 1Q2010, as a result of the 2008 global financial crisis.”

“SMEs need to work hard at getting paid – by persistently chasing debtors, while staying focused on building a sustainable order book,” Ms Ong said.

Globally exposed SMEs such as those in the manufacturing and wholesale trading sectors have seen their payment days trending upward in the last four quarters, as China’s growth slows and the Eurozone crisis shows no signs of abating.

Historical performance has indicated that SMEs need to pay particular attention to their debts outstanding over periods of escalating economic uncertainty.