9 in 10 SMEs successful in securing debt financing, but delayed payments from customers remains a key challenge

  • Date
    15 Dec 2017
  • In This Story
  • Reference Number NR/24/2017

Access to financing remains strong

1. Findings from the second edition of the SME Financing Survey conducted by SPRING Singapore, revealed that about 13% of SMEs sought external financing in the past year and out of these, 90% that applied for debt financing1 were successful in their applications.

2. The most commonly cited purpose by over 60% of SMEs that sought external financing2 in 2017 was for cash flow management. Bank loans were the most popular form of external financing across SMEs of different sizes, industries and stages of development.

3. Majority of the remaining 87% that did not turn to external financing, indicated that they had sufficient funds to operate, while a smaller proportion (9%) indicated a personal preference not to borrow.

4. The survey also found that larger SMEs were more likely to seek external financing given their growth needs and the approval rate for debt financing was higher compared to micro companies (i.e. companies with revenue below S$1 million). Micro companies faced lower approval rates largely due to the lack of financial documents and/or weaker business performance to support their debt application (i.e. revenue could not justify the quantum of financing requested). This also reflects the ability and risk of the micro companies to manage the loan repayment.

Finance-related challenges by SMEs

5. While viable SMEs continued to be able to access debt financing, managing delays in customers’ payment remains as a key finance-related challenge. The findings further revealed that 64% of SMEs (i.e. three in five SMEs) currently faced some form of delay in receiving payments from customers. SMEs also continued to rank delays in customers’ payments as the top finance-related challenge they expect to face in the coming year. Click here for key findings and charts.

6. The issue with managing delayed payments, thereby affecting cash flow and working capital management, is a consistent finding across various recent surveys/studies released. For instance, the 2017 Singapore Working Capital Study showed that Singapore businesses generally took about 41.5 days to convert their working capital to revenue as measured by net working capital days3, and recorded a worsened year-on-year figure4 (increased by 3% / 1.3 days). This longer cycle was driven by both an increase in the time taken to collect payment from customers and convert inventory into sales. This study is a collaboration between PwC Singapore and SPRING to enable SMEs to benchmark their working capital management practices and find ways to improve their performance.

Managing cash flow key to long term business success

7. While external financing can help bridge gaps in payment cycles in the short term, SMEs should strengthen their cash flow management capabilities to improve long-term resilience and competitiveness.

8. “No business can operate successfully without effective cash flow management. Even profitable companies can go under if their cash flow is not well managed, which may result in them being unable to meet their financial obligations. To better manage cash flow, SMEs can put in place regular reviews and controls on financial reporting so that any potential issues with billing, cash collection and credit terms with customers can be promptly addressed,” said Ms Chew Mok Lee, Assistant Chief Executive, Capabilities & Partnership Group of SPRING Singapore. SMEs can also turn to other sources of help made available online such as the PwC-SPRING Working Capital Study interactive tool to benchmark their financial performance against industry peers or make an appointment with a business advisor at any of the SME Centres for basic business diagnosis and advice.

9. Click here for additional information on how SMEs can improve financial management capabilities.

1 More than 1,800 SMEs were surveyed. About one in ten SMEs (13%) applied for external financing and out of these 90% were successful in applying for debt financing. This includes working capital loans, trade facilities, hire purchase/equipment loans, overdraft, factoring and factory loans.
2 Types of external financing options include, bank loans, equity, crowdfunding and others.
3 Net Working Capital (NWC) days measure the liquidity of a business and how long it takes to convert its working capital into revenue. The longer the cycle is, the longer a business is tying up capital in its working capital without earning a return on it.
4 Source: PwC-SPRING Singapore Working Capital Benchmarking Study 2017 - Singapore’s Net Working Capital days was 40.3 days (FY2015) compared to 41.5 days (FY2016), (increased by 3% / 1.3 days).

About the SME Financing Survey

The 2017 SME Financing Survey is conducted by SPRING Singapore in partnership with Dun & Bradstreet between June 2017 to September 2017. Now in its second year, the survey involved over 1,800 SME respondents across various industries, revenue bands and stages of development. Findings from the survey serves as an insight into the pulse of SME financing and financial management practices, which are used in SPRING’s review of relevant policies and initiatives.