The main challenge to profitability cited by our survey respondents in Singapore was “maintaining adequate cash flow”, at 31.7%.
Survey results for Singapore
The greatest challenge to business profitability this year
Singapore is the world’s fourth leading financial centre, and has a heavily import and export led economic focus. Indeed it is currently the 14th largest exporter and the 15th largest importer in the world, with exports to India, Vietnam and China continuing to grow. Economic growth is expected to be about 5% this year and next, back to the levels seen pre financial crisis. Against this moderately healthy economic backdrop, the main challenge to profitability cited by our survey respondents in Singapore was “maintaining adequate cash flow”, at 31.7%, although this was the second lowest response rate of all the Asia Pacific countries surveyed.
“Collection of outstanding invoices” was the second biggest challenge for Singapore’s respondents, though at 26% this was the highest response rate of the countries surveyed, suggesting that it is more of a problem for Singapore than other countries. It is possible that this is attributable to Singapore’s close trading relationship with China, which has notoriously hostile collections regulations and legislation preventing foreign businesses from pursuing Chinese debts.
“Falling demand for products and services” was third most frequently cited challenge, noted by 24.5% of respondents in Singapore compared to 32.3%for the Asia Pacific region overall. Although, “bank lending restrictions”, which was the fourth most frequently noted challenge, cited by 17.8% of Singaporean respondents, still represented an above average risk compared to the regional average of 14%. In July 2014, Moody’s gave Singapore’s banks a negative outlook for the coming 12-18 months. Banks had grown both domestic and cross border loans in recent years and along with rising interest rates, this outlook could cause problems. This seems likely to be the cause of the strained lending environment.
Past due receivables and uncollectables
Being unable to collect monies owed can be, at best, frustrating and at worst terminal for businesses. Both extremes were a part of life for many business during the global economic crisis. Overall, late payment seems to be less of a problem for businesses in Asia Pacific with 36.2% of invoices unpaid at their due date, than it is for their counterparts in the Americas where 38.4% extended past due date. Singapore, however, at 41.5%, has the highest percentage of overdue receivables of the Asia Pacific countries surveyed suggesting that collecting outstanding invoices poses a greater challenge in Singapore. This was reinforced by the above regional average percentage of receivables over 90 days past due (5.7%) and uncollectable (2.4%). In both cases Singapore had the third highest percentages.
Days Sales Outstanding – DSO
The average DSO of respondents from Singapore was 47 days, the same as that of the USA, but 7 days less than the 54 day average of the Asia Pacific region. Nonetheless, against an average overall payment term of 34 days, there is a significant time-lag between invoicing and actually getting paid, creating strain on cash flow. In closer detail, 65.9% of those surveyed indicated a DSO of 0 to 30 days; 18.8% 31-60 days; 5.8% 61-90 days and the remaining 9.4% over 90 days. 71.9% of respondents said that they become concerned about the sustainability of the business when DSO exceeds the average payment term by 31 days.
Also of note, by comparing the percentage of receivables that remained outstanding after 90 days past due, to that of the uncollectable receivables, we can conclude that on average, businesses in Singapore lose 42.1% of the receivables which are unpaid at 90 days. By country, this is the second lowest figure for the Asia Pacific region, with only Japan lower, at 20%. At 64.1%, China’s rate of uncollectable receivables to receivables 90 days past due was the highest.
Main reasons for late payment from B2B customers.
41.94% of respondents in Singapore experienced late payment of domestic receivables due to insufficient availability of funds, in line with most other countries in the region, and slightly below the Asia Pacific average of 47.25%.
In terms of international trade the figures were not dissimilar, with 36.42% of respondents citing it as the main reason for non-payment, versus an average of 34.52%.
This lack of liquidity is perhaps the most critical piece of information to understand in any trading partner. Work done to understand the cash flow pressure points of a trading partner, prior to any contracted commitments taking place, can often improve payment experience and keep a business safe.
Other top reasons given by respondents from Singapore for late domestic payments included 31.2% citing disputes over the quality of goods or services and 30.7% flagging complexity of payment, when trading internationally. 34.4% said that inefficiencies of the banking system held things up, followed by 33.8% citing incorrect information on the invoice.
Credit management policies used by respondents
For a nation with a strong, established, international trading record, it was surprising to note that of all the Asia Pacific nations surveyed, respondents from Singapore were the second least likely to use any form of credit management. As the average for Asia Pacific came in at 72.15% - albeit pulled downwards by Japan which came in at 45.86% - Singapore’s response came in at 67.19%. The Americas, by contrast came in significantly higher, at 81.48% and Europe lower at 58.3%
Of the credit management measures taken by respondents in Singapore, 56.69% check their buyers’ creditworthiness, and 54.33% request secured forms of payment. Both figures are higher than the averages for Asia Pacific, at 51.93%, and the Americas at 50.23%. Checking buyers’ creditworthiness was the most popular in most nations surveyed.
In terms of actually getting paid, respondents from Singapore were most likely to use electronic transfers at 78%, followed by cheques at 60% and then cash at 54%. These figures were not only in line with other findings in the Asia Pacific region, but aligned also with results from the Americas. Of note however, Europe leads the way in electronic transfers as a preference, at 83.81%,whilst cheque use in Europe is in decline, and sits at just 29.79%. This is the result of actions by the banking sector to reduce cheque fraud and coupled with the increasing ease of online banking, is being adopted by an increasing number of businesses. Indeed, even developed markets such as the USA do not yet have the infrastructure in place to offer such a service on a comprehensive basis.
Finally, respondents commented on the future of the various types of payment. The greatest changes were that 50% expect to see an increase in the use of PayPal – which corresponds with the continuing increase in online transactions. Conversely, the largest drop is foreseen in the use of cash where respondents anticipated a 30% decrease.