Credit terms between SMEs and customers tightened in Q3: DP Info

The Central Business District (CBD) on July 15, 2016.
The Central Business District (CBD) on July 15, 2016.PHOTO: ST FILE

SINGAPORE - Small and medium-sized enterprises (SMEs) demanded faster payment from their customers in the third quarter, leading to a drop in delinquent debts.

The findings was in a study by DP Information Group (DP Info), released on Wednesday (Dec 7).

DP Info, which is part of the Experian Group of comapnies, said credit terms between SMEs and their customers continued to tightened in the July to September period.

As a result, the percentage of debt unpaid after falling due had dropped to 46 per cent from the second to third quarter, down from the 48 per cent from the first to second quarter and 49 per cent in the first quarter over the prior three months.

"For the last two quarters the trend has seen SMEs having to place larger deposits on any purchase of goods or services as well as accepting a shorter period for the settlement of a debt," noted Mr Nick Boyle, managing director for South-east Asia and emerging markets at Experian.

Mr Boyle added that SMEs also undertook greater pre-emptive action to avoid being landed with bad debts. This included doing more frequent credit checks and the sharing of payment intelligence between SMEs through the DP SME Commercial Credit Bureau.

DP Info found that the manufacturing industry saw the most significant drop in companies with delinquent debtors from 76 per cent in the first quarter, to 65 per cent in the third.

The commerce-retail sector had the lowest percentage of delinquent debts with only 21 per cent unpaid during the period.

However, Mr Boyle said the tighter credit conditions have had an impact on the cashflow of firms, with 7 per cent - doubled from last year -of SMEs citing cash flow problems as a top business concern.

"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."

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, generally unchanged from the previous quarter.

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

Meanwhile, construction companies took five days longer to settle their bills, owing to a slowdown in private sector building projects.