TL;DR

How: Automation tools, large enterprises and government bodies are key to improve late payments

SMEs are Leaking Money Due to Late Payments

Late payments cost SMEs liquidity and interest, which can prove costly in the long run.

SBO Xero late payments
Published:   |   Updated:   |   Posted in ,

in Singapore, late payments to SMEs add up to S$4.146 billion.

At first glance, late payment to a small business may not seem like a major issue. Our research reveals, however, that the trend of late payments to SMEs is a rampant problem, creating a major impact on their ability to grow their businesses and improve their products and services. In fact, our research in Hong Kong and Singapore shows that this problem adds up to billions of dollars worth of cash – money that could otherwise be used as capital to invest further in the business or even to simply pay employees and suppliers.

A total of $13.339 billion worth of invoices to Hong Kong SMEs are paid late; in Singapore, late payments to SMEs add up to S$4.146 billion. In Hong Kong, the tardiness most often occurs for a period of one to three days (8.63%) or four to seven days (6.93%). Singapore SMEs have it worse, seeing higher instances of payments that are late by one to three days (10.32%) as well as more than 31 days (11.32%).

39.45% [of payments] to Singapore SMEs are [paid] on time.

In fact, only 56.04% of payments to Hong Kong SMEs and 39.45% to Singapore SMEs are made on time. In contrast, 13.87% (HK$7.885 billion) and 18.84% (S$2.673 billion) of invoices from SMEs are left unpaid in Hong and Singapore, respectively.

Our report delves deeper into the breakdown per sector in each country, but we’ll just take a close look at Singapore here.

Late and unfulfilled payments for Singapore SMEs

The extent of late and unfulfilled payments to Singapore SMEs is rather dispersed among sectors. For instance, while the Professional, Scientific & Technical Services sector tends to have the highest dollar values for late and unpaid invoices, it ranks low in terms of percentage. The same sector, however, also has the highest amount of on-time payments, although it does not rank particularly high in that category. This indicates that overall transactions for this sector are either larger or better represented in our data.

The sectors with the highest rate of on-time payments are Agriculture, Forestry & Fishing, Health Care & Social Assistance, and Public Administration & Safety.

Professional, Scientific & Technical Services

On Time
1-3 Days Late
4-7 Days Late
8-14 Days Late
15-31 Days Late
Older
Unpaid
$
$562,724,567
$102,308,027
$83,609,865
$103,296,201
$161,123,293
$264,273,729
$51,614,1251
%
37.44%
5.48%
4.63%
5.55%
9.20%
16.75%
20.96%

Better-performing sectors

The sectors with the highest rate of on-time payments are Agriculture, Forestry & Fishing, Health Care & Social Assistance, and Public Administration & Safety.

Agriculture, Forestry & Fishing and Health Care & Social Assistance also have among the lowest rates of late payments, ranging from four to more than 31 days late. In addition, the former has some of the lowest dollar values across all categories, including on-time payments. This makes sense given that agriculture is not a major industry in Singapore, contributing only less than 1% of the country’s GDP per capita.

Most affected sectors

Transport, Postal & Warehousing had among the highest rates of late payments for 15 days up to >31 days (34.6%)…

Despite having some of the lowest dollar values for late payments – reflective of its small industry size, contributing even less to Singapore’s GDP than agriculture – the Mining sector has some of the high rates of late payments by four to seven days, 15 to 31 days, and more than 31 days. It also has one of the lowest rates for on-time payments.

The Accommodation & Food Services sector fares worst for payments that are one to three days late (32.69%), but also has some of the lowest rates for unpaid invoices (12.39%) and tardiness beyond 31 days (4.19%). Transport, Postal & Warehousing had among the highest rates of late payments for 15 days up to >31 days (34.6%), as well as unpaid invoices (23.04%). However, the Electricity, Gas, Water & Waste Services has the highest instances of unpaid invoices, at 53.81% – more than half of their collectables.

The opportunity cost of late payments

Late payments and unpaid invoices not only derail cash flow. They also cause companies to lose out on revenue-generating activities, such as growing the business, starting new projects, and even simply gaining interest from bank deposits.

Late payments and unpaid invoices not only derail cash flow. They also cause companies to lose out on revenue-generating activities, such as growing the business, starting new projects, and even simply gaining interest from bank deposits.

Take, for example, the total amount owed to Singapore SMEs and multiply that with interest rates for bank deposits. Here we take some typical interest rates offered by banks, depending on the number of weeks the deposit is kept.

Country
Total Late Payments (Not Including Unpaid Invoices)
0.05% Interest
0.2% Interest
0.5% Interest
0.8% Interest
1.0% Interest
Singapore
S$4,146,355,352
S$2,073,177
S$8,292,710
S$20,731,776
S$33,170,842
S$414,635,535,200

These show that no matter the scenario – be it a one-week or one-year deposit – businesses have much to lose when payments are delayed or, worse, never fulfilled at all. SMEs lose the opportunity to reinvest the cash into the business or let it grow in the bank.

Finding a solution to late payments

One blueprint for a solution to late payments can be seen in the UK. Having seen little improvement even after introducing the Prompt Payment Code, the government recently launched a call for evidence to gather more data on the impact of late payments to SMEs. As the most widely used online accounting platform for small businesses in the UK, we are helping to gather such evidence. This data will be used to develop responsible payment practices across the supply chain.

We also call on large enterprises and government bodies to be proactive in improving their payment processes and reduce the time it takes to pay SMEs.

At the same time, small firms, as well as partners in the accounting industry, are taking it upon themselves to find ways to reduce the time it takes to get paid. For example, we strongly advocate the use of automation tools for invoicing, as this has proven effective for some 80% of our UK customers.

We also call on large enterprises and government bodies to be proactive in improving their payment processes and reduce the time it takes to pay SMEs.

With SMEs comprising the majority of businesses in Hong and Singapore and employing more than half of the population, one cannot understate the impact of late payments to SMEs on the economy. It is thus fitting that different segments of the population – the government, finance and accounting sector, large enterprises, SMEs themselves – take part in the movement to bring down the late payments cash mountain.

Kevin is the Regional Director (Asia) of Xero, a cloud accounting software that automates a business’ accounting needs. Connect with him on LinkedIn.

Featured image by Mandy Klein


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I’m the Regional Director for Asia at Xero, a global small business platform. My team and I help small businesses and their advisors across Asia embrace cloud technology to run productive, more profitable businesses. I’m passionate about getting to know small businesses better and understand how we can better help them grow.
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