Atradius recently released the 2020 survey results report that highlights a worsening in Singapore payment practices compared to the previous year. The report suggested that this is due to the slowdown in Singapore’s economy as a result of the uncertainty in trade policies, a reduction in demand from China, as well as the negative impact from ongoing COVID-19 pandemic. In this article, we will explore the report’s key findings:
SMEs are concerned about trade credit risks
The survey reported that Singapore cash sales for B2B increased from 34% last year to 39% this year, whilst credit sales decreased from 66% to 61% this year. This suggests that many credit sales have been converted to cash sales this year to minimise trade credit risks or non-payment.
Longer Payment Terms
The survey highlighted that Singapore payment terms increased from 29 days last year to 39 days this year in 2020. The report suggests that B2B suppliers may now need short term trade finance or invoice finance facilities more than ever to help ease their cash flow strain caused by longer payment terms.
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Increased focus on Credit Risk Management processes
Majority (95%) of respondents reported that they have strengthened their customer credit risk management process. This is to minimise the risk of liquidity shortage caused by payment defaults from their B2B customers. Over half reported that they have insured their receivables with an external insurer.
Increase in late payments
The survey also found a significant increase in late payments from B2B customers. An average of 40% of the total value of B2B invoices were overdue compared to 31% last year (2019). 11% of the total value invoices are overdue by more than 90 days, posing a risk of payment default.
Results of the survey showed that overdue invoices were settled (paid) within 22 days from the invoice due date. This is a significant increase when compared to 2019 when it took only 15 days. About 5% of overdue receivables are written off as bad debt. Main reasons for late payment were:
- 44% – using outstanding invoices as a form of financing
- 42% – due to inefficiency of internal payment process
- 40% – due to dispute over the quality of goods or services provided
Increase in external funding needs
Almost half of Singapore businesses (49%) are expecting the need for additional finance to fund their businesses due to the economic downturn caused by the coronavirus pandemic. 52% have a positive outlook, anticipating an improvement in business performance over the next 12 months.
Overall, the survey suggests a decline in payment behaviour in Singapore, with payment terms extended further and the rate of late payment having increased. It is prudent to ensure your company has a stringent credit risk management policy and collection process to minimise any potential bad debts.