Overview of payment practices

By industry

Chemicals

DSO far worse than the country average

Days Sales Outstanding (DSO) in the Singapore chemicals industry averages 89 days (country average: 57 days). Not only does this finding suggest that quite a few of the respondents’ B2B customers paid invoices very late, but it also points to a relatively poor success rate in collecting long-term outstanding receivables, particularly invoices of high value.

Late payments in the Singapore chemicals industry affect an average of 42% of the total value of invoices issued to B2B customers.

This is slightly above the country average (40%). 8% of the value of invoices remains unpaid 90 days past the due date (country average: 11%). 3% of the total value of B2B invoices is written off as uncollectable (country average: 5%). For nearly half of the respondents in the Singapore chemicals industry, B2B customers delay payments due to inefficiencies of their internal payment process. Invoices are paid late most often due to liquidity constraints or as outstanding invoices are used as a form of financing (as reported by 46% of respondents in each case).

Nearly 4 in 5 survey respondents ask B2B customers for guarantees of payment before selling on credit

Most Singapore respondents in the chemicals industry (78%, compared to a 65% average for the country) reported they ask for guarantees of payment from their B2B customers, while 75% request a letter of credit (country average: 68%). Credit insurance is used by 74% of respondents (country average: 59%).

In order to avoid liquidity constraints caused by customer payment defaults and remain financially sound, many respondents from the industry (40%) said they needed to increase resources, time and costs to chase overdue invoices, while 37% reported they delayed payment of invoices to their own suppliers.

Customer credit risk in B2B trade expected to deteriorate over the coming months

Far fewer respondents from the Singapore chemicals industry (13%) expect customer credit risk to improve than to worsen (37%) over the coming 12 months. This deterioration is expected to cause an upswing in outstanding receivables written off as uncollectable, negatively impacting cash flow. To mitigate the risk of incurring liquidity constraints caused by payment default, respondents plan to ask for payment guarantees or to letters of credit, substantially more often.

Over one quarter of the respondents (27%) plan to use trade debts securitisation, or to sell more often on a cash basis over the coming months.

For nearly half of the Singapore respondents from the chemicals industry, dependence on bank finance will increase over the coming months due to the increased indebtedness of the industry. When asked their opinion on the outlook for the chemicals industry in Singapore, 52% of respondents said it will improve, while 26% anticipate a deterioration.

AGRI FOOD

DSO in the industry is significantly below the country average

75% of respondents in the industry reported Days Sales Outstanding (DSO) up to 30 days, resulting in a 28-day average (country average: 57 days). This is in line with the industry’s average payment terms evidenced in our survey. This points to a relatively high success rate in collecting long-term outstanding receivables, particularly invoices of high value. As the survey findings highlight, an average of 34% of the total value of the invoices issued by respondents to their B2B customers is overdue (country average: 40%).

Long overdue receivables (more than 90 days overdue) average 8% of the total value of overdue payments (country average: 11%). The proportion of receivables written off as uncollectable averages 5% (consistent with the country average). B2B customers of Singapore respondents in the agri-food industry delay payment of invoices most often due to disputes over the quality of goods and services provided, or because of inefficiencies in their internal payment processes (42% of respondents each).

Industry’s most often used credit management technique: letter of credit

To keep the risk of payment default under control and improve cash flow, respondents from the Singapore agri-food industry most often ask B2B customers to provide a letter of credit (62%). 58% of respondents request goods and services to be paid in cash, while 52% request guarantees of payment.

Additionally, to avoid liquidity shortages caused by customer payment defaults and strengthen their credit control systems, 36% of the agri-food industry respondents (in line with the country average) said they needed to increase time, costs and resources to chase overdue payments, while 33% started to delay payments to their own suppliers.

Stronger focus on avoidance of trade credit risk concentration

More respondents in the Singapore agri-food industry (31%) expect customer credit risk to worsen than improve (14%) in the near term. 55%, however, do not expect any change. To manage customer credit in the coming months, respondents in the Singapore agri-food industry will increasingly focus on avoiding credit risk concentration by reducing reliance on a single buyer. They also plan on selling on a cash basis or sending dunning letters (invoice reminders) more often.

For 42% of Singapore agri-food respondents, indebtedness of the industry will increase, causing businesses to become more dependent on bank finance. Banks are expected to keep financial support for the industry stable (as stated by 52% of respondents), or to increase it (30% of respondents). When asked about the outlook for the industry, 46% of Singapore respondents said that business performance (sales and profits) will improve, and 27% said it will worsen, over the next 12 months.

CONSTRUCTION

Long-overdue payments are three times higher than country average

As survey findings highlight, on average 60% of the total value of construction industry B2B invoices issued by Singapore respondents remains outstanding at the due date (far above the country average of 40%). Long-overdue receivables (more than 90 days overdue) average 33% of the total value of overdue invoices (three times higher than the 11% average for the country). The proportion of receivables written off as uncollectable averages 13%, compared to a 5% country average.

This reflects an insolvency environment that had already deteriorated last year, as residential and commercial construction output decreased. Although late payments in the construction industry in Singapore most often occur due to disputed invoices, nearly 3 in 5 respondents said that their B2B customers delay payments as a form of financing. When asked to indicate their average annual DSO, 63% of respondents reported DSOs up to 30 days, and 31% up to 60 days, resulting in a 36-day average.

B2B customers paid suppliers late to avoid cash flow shortages

To minimise the impact of poor cash flow on the viability of their business, respondents from the Singapore construction industry most often needed to delay payment to their own suppliers and to increase time, costs and resources to chase overdue payments (62% of respondents in each case).

38% of respondents needed to request a bank overdraft extension. The credit management tools and techniques most often used by respondents include self-insurance (71%), letters of credit, and guarantees of payment (64% each).

Overall industry indebtedness expected to grow in the near term

Over four times as many respondents in the Singapore construction industry (44%) expect customer credit risk to deteriorate than expect it to improve (10%) in the near term. 46% do not expect any change. Although most respondents do not plan to change their mix of credit management techniques, 2 in 5 respondents foresee either an increased avoidance of reliance on a single buyer, or a more frequent use discount incentives for early payment of invoices.

Over half of Singapore respondents in the construction industry anticipate an increase in the overall indebtedness of the industry in the near term, because of the contraction of business chiefly due to the coronavirus pandemic. This will cause dependence on bank finance to increase. On a positive note, however, 67% of respondents believe that business performance in the construction industry (sales and profits) will improve over the next 12 months.

Download the report

Can we help you with information about other questions you have about managing your receivables?

Share this article

Continue reading