The turning fortunes of the construction sector were cited as a possible reason for the improved performance.
Q2 2019 saw 47% of small and medium-sized enterprises (SMEs) in Singapore paying their debts on time, which is said to be the highest in two years, due in part to a healthy pipeline of activity within the construction sector, a report by information services Experian revealed.
The construction sector witnessed a significant improvement in debt settlement, with only 16% of firms more than 90 days delinquent in their debt payments. This is a stark contrast to Q4 2018, when the industry was plagued by a high volume of delinquent payments at 35%.
The report also found that the average of 47% of SME debt paid on time in Q2 2019 represented an increase from 38% in Q4 2018. “This is the best performing quarter amongst Singapore’s SMEs since Q1 2017 where 52% of SME debt was paid on time. This was largely due to more timely payments from the retail and manufacturing sectors,” Experian noted.
Data from the Singapore's Purchasing Managers' Index (PMI) pointed to a protracted slowdown in manufacturing growth, likely a by-product of the ongoing trade tensions between the US and China, and also softening global demand. “With the impact of declining growth on bottom-lines, SMEs in the manufacturing sector may be under increasing pressure by creditors to pay within credit terms,” the firm explained.
As well, the higher volume of timely payment also fuelled improvements to days turned cash (DTC) national average, a measure of the debt settlement timelines amongst SMEs, with a 10 day decrease from Q4 2018 to Q2 2019. Whilst most sectors experienced slight decreases in DTC during this period, the construction and retail sectors registered decreases of 20 and six days respectively, representing the key contributors to the overall shortening of payment settlement timelines.
Growth in the construction sector is set to continue throughout the year, with a survey by the Monetary Authority of Singapore (MAS) identifying the sector as the sole bright spot in the Singapore economy against a backdrop of rising trade protectionism and a global slowdown.
Also read: Construction sector could grow 3% in 2019
According to James Gothard, general manager of credit services at Experian Southeast Asia, the easing of rules around public projects may have also enhanced the competitive ability of SMEs in the construction sector, potentially enabling a higher number of smaller firms to bid for public sector construction projects.
Introduced in June 2018 following a review by the Ministry of Trade and Industry’s (MTI) Pro-Enterprise Panel, the revised rules brought about cost-savings and a streamlined tender process aimed at encouraging more participation from SMEs in public projects. Some measures include exempting companies with annual revenues below $5m from producing audited financial statements, and removing the need to affix company stamps on certain tender-related documents.
Meanwhile, the increased number of timely payments within the retail sector was seen as a possible effect of a shrinking retail market. According to the Department of Statistics (Singstat), the retail sector experienced a 1.8% YoY decrease in sales value as of April 2019. To remain competitive in a challenging business environment, retail businesses are said to be taking on less inventory to improve their flexibility and agility to market, carry less debt, and allow them to pay creditors in a timelier manner.
Conducted on a bi-annual basis, the SME payment behaviour report analyses payment patterns of more than 120,000 companies in Singapore across eight major sectors comprising retail, wholesale, construction, hospitality / food & beverage (F&B), information & communications, manufacturing, services and transport / storage, during the first two quarters of 2019.
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