Retailers hit with constricted cash flow as creditors demand for prompt payments

Only 25% of F&B firms pay bills on time.

Singapore’s retail firms are scrambling for looser cash flows as creditors feel the chill of looming defaults.

According to a report by DP Information Group, retail companies take the fewest days to settle a bill before it is due, indicating that creditors are demanding prompt payment.

“According to the Days Turned Cash (DTC) National Average - a measure of the days a company takes to pay a creditor once a debt is due - retail SMEs took just 12 extra days to settle their accounts in Q1 2016,” DP Information Group said.

This is far from the national average of 29 days, the average of eight industries. Additionally, a high 77 per cent of retail companies settled their debts on time, making them the most prompt payers of any industry.

According to Lincoln Teo, CEO of DP Info, tight payment times are an indication of the concern other companies have when providing credit to retail companies.

“Some companies are telling us that it is now the norm to demand prompt payment from retail companies. It is also their policy to vigorously pursue money owed by retailers,” he added.

Meanwhile, several unfavourable factors have made companies more cautious when extending credit to a retail firm, including higher wages, foreign labour restrictions, increased rents, and tighter competition, Teo said.

“This has a negative effect on the cash flow of retail companies because they are unable to tap on suppliers’ credit - a common short-term financing approach used to ease their cash flow,” he explained.