Survey findings for Sigapore
Heightened perception of B2B trade credit risk, particularly in the domestic market
Singapore is highly dependent on international trade and fully integrated into the Asian supply chain. Last year its export-driven economy was impacted by lower global trade flows, ongoing trade policy uncertainty, a decrease in demand from China, and the global ICT down cycle. Economic growth slipped to 0.7%, causing a deterioration of the domestic insolvency environment. The global coronavirus pandemic added to this, leading to a severe contraction in economic activity since the beginning of this year.
Against this background, survey responses to the Atradius Payment Practices Barometer in Singapore point to an increase in respondents’ B2B sales on a cash basis (at 39% of the total value of their B2B sales, up from 34% last year). Interestingly, this increase corresponds exactly with the decrease in sales transacted on credit (now at 61%, down from 66% last year), suggesting that many of last year’s credit sales transacted have moved to transactions on a cash basis this year. This points to a heightened perception of customer credit risk in B2B trade in the current unfavourable business environment.
However, the fact that as much as two thirds of the sales to B2B customers were made on credit, including within the domestic market, may suggest B2B buyers need suppliers to help with filling a gap in their short-term trade financing.
Longer payment terms reflect importance of trade credit as source of short-term finance
The survey findings highlight that B2B customers enjoy significantly longer payment terms than last year. These average 39 days from the invoice date, up from a 29-day average last year. This significant lengthening of payment terms corroborates the assumption that B2B buyers need suppliers to fill a gap in short-term trade financing in times of strained cash flow. When asked about the underlying criteria for setting payment terms in B2B trade, 59% of Singapore respondents reported that they set payment terms in accordance with their company standards and internal business practices.
This was most often reported from respondents in large enterprises and from the services sector. For 31% of respondents, chiefly mid-sized businesses and from the wholesale trade sector, payment terms for B2B customers are established in accordance with industry standards, reflecting the competitive environment they trade in.
Significant focus on strengthening B2B credit risk management processes
95% of survey respondents in Singapore reported that they strengthened their customer credit risk management processes to minimise the risk of liquidity shortages caused by payment default from their B2B customers. The tools most frequently used by respondents include letters of credit (68%) and guarantees of payment (65%). 60% reported they managed customer credit risk internally (self-insurance) and almost the same percentage of respondents said they have insured their receivables with a credit insurer.
This is particularly the case for respondents from large enterprises and in the wholesale trade sector. Additional credit risk management techniques cited by Singapore respondents include reducing reliance on a single buyer to avoid concentrating credit risk.
Payment duration in Singapore
d = average days Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020
of Singapore respondents have strengthened credit management process to defend against late payments from B2B customers.
Atradius Payment Practices Barometer – June 2020
Sharp increase in business insolvencies expected this year
According to survey findings, respondents in Singapore experienced a significant increase in late payments from B2B customers. An average of 40% of the total value of B2B invoices were overdue (far above the 31% recorded last year). However, this is notably below the 52% average for the region. Long-term overdue invoices (still outstanding after 90 days past due, with a high likelihood of turning into bad debts) amount to 11% of the total value of B2B invoices issued by respondents (over three times higher than the 3% average of last year).
However, this is below the 15% average for the region. Overdue invoices are turned into cash within 22 days of the invoice due date, significantly longer than the 15-day average of one year ago (regional average: 27 days). Singapore respondents reported having written off 5% of overdue receivables as uncollectable (over twice as much as the 2% average of last year, and above the 3% current average for the region). This indicates lower success in debt collection than last year. Survey responses reported that collecting outstanding debts was most difficult for the ICT industry.
Protecting the business against payment defaults from B2B customers helps avoid liquidity shortfalls and ensures financial soundness, particularly when economic headwinds are strong and unpredictable.
When asked about the reasons for payment delays from their B2B customers, 44% of Singapore respondents stated that B2B customers delay payments mainly as they use outstanding invoices as a form of financing (regional average: 49%). For 42% of respondents, late payments from B2B customers are attributable to inefficiencies of their internal payment process (42%, below the 50% regional average), while 40% said that customers pay invoices late due to disputes over the quality of goods or services provided. In order to manage the risk of liquidity constraints caused by delayed B2B payments, 38% of the respondents said they needed to increase time, resources and costs to chase overdue invoices, and 37% postponed payment of invoices to their own suppliers.
To manage customer credit risk in these challenging times, it is essential that companies have a strategic approach to credit management. Protecting the business against payment defaults from B2B customers helps avoid liquidity shortfalls and ensures financial soundness, particularly when economic headwinds are strong and unpredictable. Maria Sandhu, Country Manager for Singapore
Half of Singapore businesses anticipate dependence on bank finance in coming month
Pointing to current economic challenges, including the uncertainties stemming from the impact of the coronavirus pandemic on Singapore’s domestic economy, survey respondents (particularly from mid-sized and in the wholesale trade sector), expressed concern over their liquidity levels. For 49% of respondents, this will increase business dependence on bank finance.
However, most of the respondents in Singapore expressed a positive opinion that the several massive stimulus packages introduced by the government will help sustain the economy and support businesses with cash flow problems. Moreover, 7 in 10 respondents believe that their business will benefit from the impact of the fiscal stimulus this year. On a positive note, more respondents (52%) anticipate an improvement in the business performance of their industry over the next 12 months than those expecting a decline in performance (26%).
of Singapore respondents stated that B2B customers delay payments mainly as they use outstanding in voices as a form of financing
Atradius Payment Practices Barometer – June 2020
Uncollectable B2B receivables in Singapore
(% of total value of B2B receivables)
Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020
43% of respondents in Singapore anticipate no significant change in the payment practices of their B2B customers over the next 12 months, 22% anticipate improvement, while 37% believe payment practices will deteriorate, severely affecting their DSO.
However, to further strengthen their credit management going forward, 27% of survey respondents said their will either increase measures aimed at reducing reliance on a single buyer, or ask for guarantees of payment more often. Nearly one quarter of respondents said that they offer discounts for early settlement of invoices, or increase their dunning activities (sending of outstanding invoice reminders).