Overview of payment practices

By industry

AGRI-FOOD

Overview

Due to limited cultivable land and therefore little local agricultural production, the city-state of Singapore is almost totally dependent on imports for its food requirements. concerns about disruption to the industry supply chains have been exacerbated by the pandemic, and have

compounded business concerns over maintaining adequate cash flow over the coming months. In light of this, businesses polled in the agri-food industry in Singapore believe that B2B trade credit will be more widespread over the coming months, in particular as a bid to stimulate demand.

Despite collection efforts, DSO higher than in Asia

Agri-food businesses in Singapore (63%) are far more likely than their industry peers in Asia (57%) to request cash payments. Once the terms of the trade deal agreed, more businesses in Singapore (64%) than in Asia (55%) rely on letters of credit initiated from their customers to secure payment. Adjusting payment terms to reflect the credit risk profile of the customer is also more often reported by businesses in Singapore (63%) then by their industry peers in Asia (51%). despite this diversified approach to managing credit risk, 52% of the agri-food industry in Singapore appears to be impacted by late payments, compared to an average of 49% in Asia. However, when it comes to bad debt losses, businesses in Singapore

appear to be better positioned than their Asia-wide peers. On average, the former wrote off 4% of the total value of their B2B receivables as uncollectable. This is lower than the 6% the average for industry in Asia. Although this reflects relatively stronger collection efforts, local industry respondents spent more resources on chasing overdue invoices (52% in Singapore versus 48% in Asia). In addition, more businesses in Singapore (41%) reported an increase in dSO over the past year than their peers in Asia (37%). The Singaporean agri-food industry reported an average dSO of 123 days, compared to a 119-day average for the industry in Asia.

Twice as many agri-food businesses in Singapore worried about supply chain than in Asia

Perhaps reflecting their more vulnerable dependence on food supply chains, twice as many respondents in Singapore than in Asia are worried about future disruptions to the industry supply chain impacting their business operations and ultimately profitability.

That said, businesses are more optimistic than their regional peers about potential improvement to their business performance (sales and profits). 34% of the Singaporean agri-food industry expressed concern about maintaining adequate cash flow levels over the coming months (regional average: 32%). Although the majority of businesses polled in the city-state (53%, compared to 57% in

Asia) believe that the expected improvement will arise from a rebound in the domestic economy, more businesses in Singapore (20%) than in Asia (13%) believe their business performance will improve due to a revamping of export trade flows. The remainder believe business performance will improve due to a combination of increased exports and more favourable economic conditions. Against this backdrop, far more businesses in the Singapore industry (42%) than in Asia (33%) believe that B2B trading on credit will become more widespread to stimulate demand.

CHEMICALS/PHARMA

Overview

There are more late payments in the Singaporean chemicals/pharma industry than on average for the industry in Asia. despite this, local businesses show a strong focus on protecting liquidity levels and containing costs to safeguard business profitability.

This comes as no surprise for a key industry in Singapore, where a relatively strong carry-over of insolvencies from last year to this year was anticipated after the gradual phasing out of insolvency moratorium measures.

More Singapore late payments than chemicals/pharma industry in Asia

59% of the total value of B2B credit sales last year was reported to be overdue (compared to the 54% average for Asia). This pattern repeats for long-term overdue invoices (more than 90 days overdue) where Singapore’s chemicals/pharma industry appears less successful at collection than its peer across Asia. 9% of the total value of B2B receivables was written off last year (regional average: 7%).

To protect their own businesses from

the impact of late payments, 37% of respondents delayed paying suppliers, (significantly more than the regional average of 21%). However, only 12% suspended deliveries until invoice payment, compared to 26% in Asia. 10% of chemicals/pharma businesses in Singapore turned away new customers to avoid financial risk, half of the 20% in Asia that reported doing so.

Maintaining cash flow is significant business concern

27% of respondents in Singapore told us they are concerned about maintaining cash flow in the coming months, (compared to 24% in Asia). 25% are worried about containing credit management costs (regional average: 21%). It is worth mentioning that twice as many respondents in Singapore than in Asia are worried about likely bank lending restrictions that could hamper their financial flexibility and their ability to access cash to weather fluctuations in their business activity.

47% of businesses in the industry anticipate improvement in their business performance over the next

few months (fewer than the regional average of 57%).

Although a significant number of respondents both in Singapore and Asia predict this improvement will come from a rebound of the domestic economy, more businesses in Singapore (25%) than in Asia (15%) believe the expected improvement will stem from export trade flows.

At the same time, far more businesses in the Singapore industry (47%) than in Asia (35%) believe that B2B trading on credit will be more widespread over the coming months, as businesses act to support their customers by allowing them more time to pay.

CONSTRUCTION

Overview

The pandemic-induced economic crisis has severely hit businesses in the construction industry in Singapore. Restriction of migrant workers, particularly from India, into the city-state has caused severe disruption to the industry. This is mainly due to manpower shortfalls that are currently expected to trigger increases in labour costs, which in

turn will be a factor affecting commercial offers for contracts.

Amid expectations of emergency government measures to address these issues, local businesses have expressed concern over their liquidity levels alongside their ability to contain credit management costs, and how these may impact their profitability and viability going forward.

Half of the total value of B2B invoices is overdue

50% of the total value of B2B invoices is overdue (consistent with Asia) and, on average, it took businesses up to one month longer than the due date to pay. Late payments are the reason why 67% of the industry spent more on collection efforts. A significant number of the businesses we polled told us that they needed to strengthen their internal credit control procedures, and more often retained

and managed customer credit risk internally through self-insurance. Requesting payments in cash, delaying payments to suppliers and to staff were also liquidity protection measures often cited by industry respondents. As a reflection of strong collection efforts, bad debt write offs in the Singapore industry represented only 2% of B2B receivables, consistent with the average for Asia.

Cash flow is primary worry for construction industry

Nearly half (45%) of the businesses polled in the Singapore construction industry expressed concern about maintaining adequate cash flow over the coming months. In addition, a significant number of businesses are worried about containing credit management costs and the impact of these on profitability.

However, the majority of construction businesses anticipate no change in their business performance over the

coming months. Should there be a change, more businesses are of the opinion it will be an improvement (25%) than a worsening (15%). A significant 80% believe any improvement will be due to a rebound of the domestic economy. Within this context, 45% of businesses believe that trade credit will be used more often over the coming months to allow customers more time to pay invoices, rather than as a tool to stimulate demand.

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