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More SMEs failing to pay debts on time, survey shows

SINGAPORE — Nearly two out of three small and medium-sized enterprises (SMEs) failed to pay their debts on time in the second quarter of the year, the highest level in two years, according to research by DP Information Group (DP Info).

In the first quarter of this year, more than half of all SMEs paid their debts on time. TODAY file photo

In the first quarter of this year, more than half of all SMEs paid their debts on time. TODAY file photo

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SINGAPORE — Nearly two out of three small and medium-sized enterprises (SMEs) failed to pay their debts on time in the second quarter of the year, the highest level in two years, according to research by DP Information Group (DP Info).

In the first quarter of this year, more than half of all SMEs paid their debts on time.

Mr Sonny Tan, general manager of DP Info, said the most likely explanation for the change in payment behaviour is that SMEs are managing their cash flow by prioritising which debts to pay first.

“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,” said Mr Tan.

The research analyses the payment patterns of more than 120,000 companies in Singapore during the April-June period. The survey found the proportion of SME debt paid on time fell from 52 per cent in the first three months of the year to 37 per cent in the second quarter of the year, a drop of 15 percentage points.

This is the lowest level since the second quarter of 2015, when the percentage of on-time payments was 35 per cent.

Manufacturing companies were the worst culprits, with three out of four failing to pay their debts on or before the due date in the second quarter. Hospitality and food and beverage companies were next, with two-thirds failing to pay their debts on time. Meanwhile, just under two-thirds of construction firms missed their payment dates.

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 previous quarter.

“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,” explained Mr Tan.

According to the most recent SBF-DP SME Index, a joint quarterly survey by the Singapore Business Federation and DP Info on business sentiment among local SMEs, companies expect an improvement in sales in the second half of the year, he added. “SMEs may be choosing to use their resources to fund business expansion instead of making prompt payments on their bills.”

“The problem is they are funding their growth and inventory expansion with other companies’ money. If this pattern 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.”

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