Late payments from customers remain a key challenge for SMEs in Singapore

More than half of the small and medium enterprises (SMEs) in Singapore which sought external financing this year did so for cash flow management, with bank loans being the most popular way to do this.

Most SMEs which did not turn to external financing, said that they had enough funds to operate, while a smaller proportion (9%) indicated a personal preference not to borrow.

These are some findings of the second edition of the SME Financing Survey conducted by Spring Singapore between June and September this year on more than 1,800 SMEs across various industries, revenue bands and stages of development.

In a statement, Spring Singapore revealed that about 13% of SMEs sought external financing in 2017 and out of the these, 90% that applied for debt financing were successful in their applications.

The survey also found that larger SMEs are more likely to seek external financing given their growth needs and that the approval rate for debt financing was higher compared to micro companies – those 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.

“This also reflects the ability and risks of the micro companies to manage the loan repayment.” said the statement.

But one key finance-related challenge SMEs face is in managing delays in receiving payments from customers.

Some 64%, or three in five SMEs, face such issues.

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

Spring Singapore’s assistant chief executive of Capabilities & Partnership Group Ms Chew Mok Lee said: “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. ”

Ms Lee said SMEs can put in place regular reviews and controls on financial reporting in order to quickly address issues with billing, cash collection and credit terms.