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The proportion of debt paid on time by small and medium enterprises (SME) in Singapore has fallen significantly from the first quarter of the year to the recently-ended Q2.

According to the released by the DP Information Group, the percentage of SME debt paid on time fell to just 37 per cent in the second quarter of 2017 – the lowest level in two years. This is compared to the 52 percent of on time debt payments recorded in Q1.

The study noted that whilst the proportion of unpaid debts rose during the past quarter, the percentage of severely delinquent debts did not change. These debts are those that are still unpaid 90 days after they fall due.

DP Information Group General Manager Sonny Tan stated that the change of behaviour among SMEs could be traced to their strategies in prioritising which debts to pay first as they manage their cash flows.

"We are seeing an unusual pattern of fewer on-time payments, without an increase in overall defaults. This means SMEs are taking longer to pay a debt, rather than experiencing an inability to make payment," Tan noted in a statement.

He explained that this phenomenon indicates that SMEs need the money for other things including funding growth opportunities in anticipation of greater demand expected in the second half of the year.

Citing the Singapore Business Federation SME Index, Tan noted that these firms expect an improvement in sales and favourable conditions in the coming months.

"They are also keen to pursue business expansion by increasing their market share, targeting new markets or introducing new products and services. SMEs may be choosing to use their resources to fund business expansion instead of making prompt payments on their bills," Tan expounded.

The study also revealed that the time it takes SMEs to make good on debt rose, up to 35 days in Q2 from 31 days in the preceding quarter.

The lengthening of payment times occurred in all industries except the manufacturing sector, which decreased its average payment time by one day.

On the other hand, the transport & storage sector had the largest increase in payment times, taking an average of 11 additional days to pay a debt in Q2 compared to Q1.