Singapore Businesses are Facing Higher Bad Debt Write Offs

Singapore is heavily reliant on trade for economic growth, over 65.7% reported sales on credit (a marked 15% increase from the previous year).  With 82% of Singapore businesses reported that they are experiencing late payment from B2B customers, highest across APAC.  Hence, it is vital for businesses to have a strong receivable management in place to minimise defaults.

Below are some of the key findings from Atradius Payment Practices Barometer for Singapore 2019.

Increased in Credit-Based B2B Transactions

Due to its nature of being a small, open economy where trade is extremely important, there is heavy use of trade credit in B2B transactions in Singapore. There is greater importance on the use of trade credit as it helps to sustain the company’s competitiveness. The survey data found a significant 15% increase in the volume of credit-based sales, up from 50.7% last year. This percentage stands higher than the regional average of 55.5%. Amongst the regional countries, Singapore ranks third after Australia and Japan regarding the frequency of use of B2B trade credit.

On the contrary, there is a significant dip in the percentage of B2B sales made on a cash basis, from 49.3% a year ago to 34.3% in the present year.

Payment Terms Eased

Average payment terms extended to B2B customers in Singapore have eased, as opposed to the past year. The average payment terms stand at 29 days currently, which is on average two days longer this year. However, Singapore has a shorter payment term as compared to its regional peers, averaging at 32 days. Only Australia, China and Hong Kong have shorter average payment terms.

Credit Management Practices

Within the Asia Pacific region, 53% of the companies in Singapore assess their prospective buyer’s financial health as it is a key role in their credit management policy. This prompts a very high likelihood of doubtful and even bad debts from the use of B2B trade credit.

Increased Bad Debts Written Off

An average of 31.1% of the total value of B2B invoices in Singapore was due by the invoice due date. Payment delay of an average 13 days after the invoice due date was experienced. To smooth out the cash flow crunch, 45% of the companies operating in Singapore had to adopt measures to better manage their cash flow such as delaying payment of invoices to their own suppliers. However, payment behaviour in Singapore had worsened.

Write-offs jumped from 1.8% of B2B receivables past year to 2.4% currently. Even with measures in place for cash flow management, companies are affected by the increasing receivables that are written off. This indicates that businesses are facing greater difficulties in collecting invoices and that the business environment is weakening.

India is the most impacted by late payments from B2B customers, while on the contrary, Japan the least.

DSO to Deteriorate

Businesses in Singapore are anticipating DSO to worsen over the upcoming months. 32% of the companies expect an increase in late payments and long overdue invoices i.e. more than 90 days overdue. As a result, 2 in 5 companies forecast an increase in DSO.

To safeguard their business from the risk of payment default by their B2B customers, 52% of companies will check their buyers’ creditworthiness more regularly. Increasing bad debt reserves and increasing usage of credit insurance are also viable measures to mitigate the risk of payment defaults by customers.

Overview of Singapore Businesses Payment Practices 

• Singapore businesses payment status is worsen with overdue invoices account for 31.1%  of the total value of B2B invoices, with 2.4% uncollectable
• Average payment terms are longest in the machines sectors (averaging 43 days) and ICT/electronics sectors (averaging 33 days), and shortest in the wholesale/retail/distribution and construction sectors (26 days and 27 days respectively)
• The ICT/electronics sector is hardest hit by late payments of B2B customers (averaging 41.6%), while the rate of uncollectable B2B receivables is highest in the construction (3.2%) and lowest in the services sector (1.7%)
• Micro-enterprises extended the most relaxed payment terms, while large enterprises recorded an increase in invoices paid late by B2B customers and the highest rate of uncollectable receivables

Reference

Atradius, DSO in Singapore expected to worsen, Link

Growing demand for credit insurance in APAC, Link