SMEs hope for pickings in 2018, but are still dogged by challenges

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The Singapore economy may have performed much better than expected last year, but many small and medium-sized enterprises (SMEs) are still waiting to reap the gains from that.

This year, they are hoping that the spillover from the improved environment will finally trickle down to them - and 2018 looks a lot more promising than the gloom that hung over the start of 2017.

But SMEs still face a considerable number of challenges that pose obstacles to their growth.

The perennial gripes about cost and manpower have not disappeared, although they have lessened somewhat in the face of other more urgent issues that will preside as hot-button topics in the new year.

One is the lack of collaborative opportunities with larger local players - the government-linked companies (GLCs) in particular - to venture abroad for growth together.

Another major sticking point is cashflow management, with an increasing number of businesses struggling with delays in payments by customers.

A number of reports have furnished mounting evidence that SMEs are experiencing delayed payments.

In the 2017 SME Development Survey by DP Info released in November, about 35 per cent of SMEs said they had finance-related issues - 13 percentage points more than a year ago, and the highest since the survey began tracking the issue in 2011. And among these 35 per cent of SMEs, the proportion experiencing delays in payments from customers skyrocketed from 14 per cent in 2016 to 81 per cent last year.

In a separate SME Financing Survey by Spring Singapore released last month, 64 per cent of SMEs said they were facing some form of delay in receiving payments from customers.

SMEs have also ranked delays in customers' payments as the top finance-related challenge dogging them this year.

Delayed payments have serious implications on a company's cashflow - often described as the lifeblood of a business.

One SME that experienced more instances of delayed payments last year was cold-chain logistics solutions provider ITC Group. Its executive director Teresa Chong told The Business Times that the firm had to come up with ways to tackle the problem.

"We implemented tighter credit controls, such as having more robust follow-ups with customers for payments. We also ran credit checks on newer customers or customers we were not so familiar with, to determine their credit worthiness," she said.

Ho Meng Kit, chief executive of the Singapore Business Federation (SBF), said SMEs would do well to put in place better reviews and controls on financial reporting, to ensure that potential issues with billing, cash collection and credit terms with customers can be promptly addressed.

One tactic some SMEs use when it comes to handling delayed payments is to increase the number of days needed to their pay creditors to offset cash constraints.

But Goh Beng Kim, head of commercial banking in Singapore for Standard Chartered Bank, pointed out that this is not a sustainable solution in the long term.

"SMEs need to fill the gap between their supplier terms and the credit they give to their customers to protect their cashflow."

He also proposed tapping into the vast array of assistance resources such as Spring Singapore's Working Capital Loan and the Capability Development Grant; doing so can go a long way to support SMEs' financial health.

Bank loans continue to be the most common form of external financing among SMES, Mr Goh noted, but he encouraged such smaller businesses to consider other financial instruments such as trade products, foreign-exchange contracts and even insurance, to "better manage risks and protect the business from adverse situations".

For Toby Koh, group managing director of Ademco Security Group, issues of financing and payments all boil down to relationship-building.

"We have built a relationship with a lot of our clients that makes it more of a partnership. They treat us fairly. Even if they tell me they need longer credit terms for whatever reason, I know they will pay me when the time comes. Planning becomes a lot easier," he said.

He also advised SMEs to choose the right bank to work with - and here again, it comes down to building a relationship with the bank over time.

"Get a good bank that understands your business. It's difficult to find bankers who find time to really get to know your business and give advice. That is more viable in the long term."

The other major bugbear among SMEs comes in the form of obstacles faced when they try to take their businesses abroad. Internationalisation has been widely encouraged by the government, trade associations and business chambers, but not all SMEs have managed to make this leap.

The SME Development Survey 2017 found that almost half the SMEs polled had some form of overseas engagement, but success has been patchy. Some sectors such as infocommunications and retail have made inroads overseas, but others such as construction continue to face difficulty in securing contracts.

Currency fluctuations, keen competition and difficulty in finding business partners are often cited as SMEs' biggest challenges venturing overseas.

Ms Chong of the ITC Group, which has operations in Myanmar, suggested that the lack of understanding of how other markets function could be one reason internationalisation has not taken off yet in some SMEs.

"This is especially true for emerging markets, where there is great potential but laws are complicated to navigate.

"Another issue is our lack of understanding and experience of a different culture. It's difficult to do business when you don't understand the language and customs," she said.

Even as they acknowledge the help they get from government agencies such as IE Singapore, SMEs lament the lack of opportunities to collaborate with GLCs to go abroad.

Ademco's Mr Koh said it is easier for him to secure projects with a Fortune 500 company overseas than with a local GLC. "Many of our GLCs got help when they first went overseas, and I believe there was a lot of direct intervention to pave the way.

"Now that they are big and successful, why are these GLCs not helping our SMEs?

"To me, since GLCs are a Singapore asset, they should formally or informally help SMEs go regional."

In Japan, he said, larger companies often bring their SMEs along for overseas contracts.

His company has successfully entered the markets of six countries outside Singapore, and it did so with the help of multinationals, which had introduced it to projects overseas.

He said: "GLCs have a presence in many countries. There should be positive bias in favour of Singapore companies to help them out... Sometimes, all an SME needs is a reference to get it started."

But even as he advocates greater collaboration between GLCs and SMEs to go abroad, he believes that certain standards still have to be met.

"I'm not saying 'Help everyone', but help SMEs which are prepared to put resources where their mouths are and are able to tick off certain boxes.

"Resources are always finite. Being more targeted may help our country in the long run."

SBF's Mr Ho agreed that there are at the moment few opportunities for SMEs to collaborate with more established large enterprises.

"There are also other challenges, such as coming to an agreement for all parties, as well as bureaucracy and associated legalities when dealing with larger companies, which are concerns for SMEs."

But he said that the SBF is making this issue its "new strategic focus to sense and prioritise the needs of Singapore businesses".

As the kinks are being ironed out, SMEs that have managed to grow beyond Singapore offer hope that it is still a possible undertaking.

Ms Chong's advice to SMEs is to start small. "The temptation is to go all out in a market ripe with opportunities, but exercising prudence and discernment over the timing is very important," she said.

She added that getting a trusted local partner is key, a sentiment shared by Mr Koh.

This year, Ademco is looking to venture into the Myanmar, Thailand and Cambodia markets, but he is in no hurry. "It's about whether I can find the right partner. That's the biggest criterion," he said.