Drop in delinquent debt among SMEs in Q3

But tighter credit is affecting cash flow with 7% citing it as a major concern, study finds

Demands from smaller firms that customers make prompt payments led to a drop in delinquent debts in the third quarter.

DP Information Group (DP Info) noted yesterday that the proportion of delinquent debts among firms fell from 49 per cent in the first quarter to 48 per cent in the second, to 46 per cent in the three months to Sept 30.

A delinquent debt is one that has not been paid after the due date. DP Info tracked those that have been delinquent for more than one day.

"We are also seeing greater pre-emptive action by SMEs to avoid being landed with bad debts," said Mr Nick Boyle, managing director for South-east Asia and emerging markets at Experian, DP Info's parent.

"This includes more frequent credit checks and the sharing of payment intelligence between SMEs through the DP SME Commercial Credit Bureau."

The proportion of bad debts owed to SMEs fell the sharpest for firms in the manufacturing sector, from 76 per cent of total debt in the first quarter to 65 per cent in the third.

PRE-EMPTIVE ACTION

We are also seeing greater pre-emptive action by SMEs to avoid being landed with bad debts... This includes more frequent credit checks and the sharing of payment intelligence between SMEs through the DP SME Commercial Credit Bureau.

MR NICK BOYLE, managing director for South-east Asia and emerging markets at Experian, DP Info's parent, on the drop in delinquent debts.

Companies in the commerce-retail sector had the lowest percentage of delinquent debts, at 21 per cent of total invoices outstanding during the period.

However, Mr Boyle said the tighter credit conditions have had an impact on company cashflow, with 7 per cent of SMEs citing this as a major concern - double the level recorded in last year's survey.

"When a company has its credit terms tightened, the normal reaction is for that business to do the same to its creditors. As a result, the availability of credit may contract across the entire SME community, greatly impacting the number of business transactions," he noted.

Mr Boyle added that companies will find it hard to grow without sufficient liquidity when cashflow is affected.

DP Info said Singapore firms took an average of 29 days to pay their bills after the debt had become due in the third quarter, unchanged from the previous two quarters.

However, it noted that retail companies are paying their bills after just 10 days, indicating the very short credit terms extended to them by their suppliers.

Construction companies, meanwhile, continued the slower payment trend of the last quarter, taking five days longer to settle their bills.

"Given the slowdown in private projects, this change in payment behaviour may be a sign of challenging times ahead for the construction sector," the report noted.

A version of this article appeared in the print edition of The Straits Times on December 08, 2016, with the headline 'Drop in delinquent debt among SMEs in Q3'. Print Edition | Subscribe