SMEs moving from survival to growth mode, but late payments a hindrance

Mr Ho Meng Kit, president of the Singapore Business Federation, suggested that drags in certain sectors, such as the slowdown in the construction industry, as well as the transport and storage sector, could be the cause for the increase in delayed pa
Mr Ho Meng Kit, president of the Singapore Business Federation, suggested that drags in certain sectors, such as the slowdown in the construction industry, as well as the transport and storage sector, could be the cause for the increase in delayed payments.PHOTO: ST FILE

SINGAPORE - Small and medium-sized enterprises (SMEs) are shifting from survival mode to growth mode as more look beyond cost-cutting to revenue generation, according to a new survey.

But it noted that cash flow issues could derail expansion plans as more firms experienced delayed payments this year, said DP Info's SME Development Survey.

It found that 35 per cent of SMEs suffer from finance-related issues, up from 22 per cent in 2016 and the highest level since the survey began tracking the issue in 2011.

These issues were experienced across all sectors, but transport and storage, information and communications and manufacturing were especially affected.

Among the 35 per cent of SMEs with finance-related issues, the proportion experiencing delays in payments from customers skyrocketed from 14 per cent last year to 81 per cent in 2017.

It has overtaken higher interest rates as the biggest financing issue - that came in a very distant second place at 29 per cent. This was followed by suppliers tightening credit access at 22 per cent.

Mr Ho Meng Kit, president of the Singapore Business Federation (SBF), suggested that drags in certain sectors, such as the slowdown in the construction industry, as well as the transport and storage sector, could be the cause for the increase in delayed payments.

The gap between supplier terms and the credit given to customers, along with slower customer payments, are increasing the risk of cash flow and working capital problems, warned Mr Dev Dhiman, managing director, South East Asia & Emerging Markets for Experian, parent company of DP Info.

He pointed out that it could have a domino effect that causes more problems through the SME ecosystem.

As more SMEs delay or default on payments, creditor companies start to experience cash flow problems of their own. When this happens, they delay their own payments and increasing numbers of SMEs are impacted.

"Cash flow constraints have the potential to hold back the growth strategies SMEs intend to pursue during the next 12 months," Mr Dhiman said.

Despite the financing hurdle faced, he noted that it was good news that findings show that businesses still intend to focus on growth in the coming year.

Improving customer service was the most popular business strategy at 27 per cent, followed by stepping up marketing and promotional efforts at 19 per cent. Both are designed to expand a firm's client base and generate increased loyalty and patronage from existing customers, according to the report.

Mr Dhiman noted: "SMEs are becoming increasingly customer-centric and moving away from the more inward-looking tactics such as cost suppression." Other strategies include enhancing the product range and services, as well as international expansion.

More SMEs are also turning to investments in technology to drive increased revenue growth through applications such as e-commerce platforms, data mining of customers, and enhanced sales functions.

This year, 60 per cent of SMEs said they are using technology to reap revenue gains, compared with 48 per cent in 2015.

However, the percentage of SMEs that gained manpower efficiencies through technology has moderated from 62 per cent in 2015, to 56 per cent this year.

While manpower still remains a significant cost challenge to SMEs, its relative prominence has eased, indicating that the adjustments that SMEs have made over the years in response to the labour market changes appear to be working.

The proportion of SMEs that face difficulties dealing with manpower costs has fallen to 70 per cent - its lowest level in five years. This was significantly down from the 85 per cent registered in 2013, which was the year after the foreign labour restrictions were introduced.

There has also been a decline in the proportion of SMEs having difficulties hiring the staff they need, from 49 per cent in 2014 to 26 per cent in 2017.

With manpower as less of an issue, companies can now focus on driving topline growth instead, said Mr Dhiman."In other words, this year's SME Development Survey shows SMEs are no longer just trying to survive, but looking for new ways to thrive," he added.

More than 2,500 SMEs participated in the annual survey, now in its 15th year.