The evolution of business to business marketing as an industry on its own has greatly enhanced Singapore’s economy. Like all industries, the need for trade credit has necessitated B2B lending but a new report by Atradius says late payments are putting business relationships at risk.
In the survey, 94.5% of respondents said they extended credit to their B2B customers. This is a higher number than 90.2% posted in the Asia-Pacific region. Most of the credit was forwarded to local B2B customers due to less perception of risk.
Rising Payment Delays
According to the report, more businesses extended trade credit to B2B customers but also experienced late invoices. The survey conducted over the year shows that 94% of Singapore respondents grappled with late payment of B2B invoices compared to 90.2% in the Asia-Pacific region. The delay periods according to Atradius also increased tremendously to 40 days in 2015 which is again the longest in the region.
Another notable aspect of the late payments is the fact that domestic B2B customers were more likely to default compared to foreign ones. The figure of very long overdue payments among domestic B2B customers stood at 7.8% of the total B2B credit debt.
According to the report, most domestic respondents settle past invoices 25 days after the due date while foreign overdue payments are paid on average 23 days past the due date. The level of domestic payment delays has also increased over the past one year according to the survey.
Where is the Problem?
The Atradius Survey cited liquidity problems as the greatest cause of bad debts in B2B lending. Most businesses have experienced a tough year with MAS, citing manufacturing and construction among those sectors that have been worst affected.
Almost half of the respondents cite liquidity issues but on the other hand, a large number says that customers delay invoice settlements intentionally. This helps them to cover short-term financing. The other problem largely cited by 44.4% of respondents was complexity in the repayment process. Inefficiency in the banking systems has also been blamed by foreign B2B customers.
The greatest risk according to business owners is the fact that a large number of late paying B2B customers will default. This exposes Singapore businesses to a lot of risks at a time when global economic uncertainties are already proving a nightmare for local businesses. Compared to the region the trade credit risk for domestic B2B marketers in the country is higher compared to the region.