The percentage of debt held by small and medium-sized enterprises that was paid on time fell to 37 per cent in the second quarter of this year - the lowest in two years - according to credit information company DP Information Group.
It is a sharp drop from 52 per cent in the first quarter of this year and the lowest level since the second quarter of 2015, when percentage of on-time payments was 35 per cent.
This behaviour is likely due to SMEs holding on to cash to fund growth and inventory, said DP Info.
But while the proportion of unpaid debts rose during the quarter, the percentage of severely delinquent debts - those still unpaid 90 days after they fall due - did not change.
The percentage of debts unpaid after 90 days remained at 14 per cent in the second quarter, the same level as in the first quarter.
Mr Sonny Tan, DP Info general manager, said the most likely explanation for this is that SMEs are managing their cash flow by prioritising which debts to pay first.
"We are seeing an unusual pattern of fewer on-time payments, without an increase in overall defaults. This means SMEs are taking longer to pay a debt, rather than experiencing an inability to make payment.
"This behaviour indicates SMEs need the money for other things, such as funding growth opportunities in anticipation of greater demand in the second half of the year."
According to DP Info's most recent SBF-DP SME Index, SMEs expect an improvement in their sales in the second half of this year.
They are also keen to pursue business expansion by increasing their market share, targeting new markets or introducing new products and services. So SMEs may be funding business expansion instead of making prompt bill payments .
Said Mr Tan: "The problem is they are funding their growth and inventory expansion with other companies' money.
"If this continues for several quarters it may have an impact on the overall cash-flow position of the SME community. There is a ripple effect when a debtor company delays payment as the creditor company may also slow down its payment to companies it owes money to."