Creditors want retailers to pay promptly

Retail companies here are rushing to pay their bills as creditors bite at their heels.

They were the quickest to pay bills, with small and medium-sized enterprises (SMEs) in the sector taking 12 extra days on average to settle their accounts in the first three months of the year.

The national average was a significantly longer 29 days, calculated across eight industries including construction and manufacturing.

This was part of an analysis of corporate payment behaviour released yesterday by DP Information Group (DP Info), a credit and business information provider.

It said: "While this may appear to indicate financial strength, in reality, it shows creditors are demanding prompt payment from retail companies."

DP Info chief operating officer Lincoln Teo noted that the retail sector is facing tough conditions such as higher wages, foreign labour restrictions, increased rents and increased competition.

DP Info added that 77 per cent of retail firms settled their debts on time, which meant they were the most prompt payers of any industry.

The hospitality and food and beverage sector could be facing problems, as such firms took an extra 35 days to settle their accounts.

DP Info chief operating officer Lincoln Teo said the tight payment times are an indication of the concern other companies have when giving credit to retailers.

He added: "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."

In order to prevent a cash flow problem, firms have to adopt strategies such as reviewing their business approach or reducing overheads.

He noted that the retail sector is facing tough conditions such as higher wages, foreign labour restrictions, increased rents and increased competition.

These have made firms more cautious when extending credit terms to a retail company, said Mr Teo.

"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 added.

A version of this article appeared in the print edition of The Straits Times on May 10, 2016, with the headline 'Creditors want retailers to pay promptly'. Print Edition | Subscribe