- 80% of local SMEs are optimistic about growth opportunities, and expect to see growth via new market segments (22%) and by trading internationally (13%)
- 38% of SMEs in Singapore believe that access to financing is excellent/good, with 71% citing favourable financing conditions that would make the biggest difference to their businesses
- 49% of Singapore SMEs cited rising overheads and costs and 45% named cashflow as the largest challenges they face
Rising costs is the greatest challenge faced by small businesses around the world, according to the latest Global Business Monitor study from global SME partner, Bibby Financial Services and global leader in trade credit insurance Euler Hermes.
Findings of the research, based on a survey of more than 2,300 SMEs in 13 countries across Asia, Europe and North America, show that two-fifths of businesses (42%) believe rising costs and overheads is their greatest challenge. Government regulation (36%) and cashflow (32%) were also cited in the top three concerns in 2019.
Despite concerns about the knock-on effects of global uncertainty, almost half say they believe their business performance will improve in the next 12 months, and a third believe they will maintain existing growth levels.
Global Chief Executive at Bibby Financial Services, David Postings, said: “It’s clear that SMEs around the world are becoming accustomed to global uncertainty and many are taking matters into their hands, investing in capability and expansion.
“However, the impact of geopolitical events such as the U.S. and China trade war, and Brexit, are already impacting costs significantly. This cost inflation is contagious due to the interconnected supply-chains in which small businesses operate. Ultimately, smaller businesses will need to pass on these costs to customers, but in the short term – at least – this situation has a hugely detrimental impact on cashflow levels.”
Ludovic Subran, Global Chief Economist, Euler Hermes, added: “As the risks of a recession rise and global GDP is expected to grow at its slowest pace since 2009 in 2020 (+2.4%), it is all the more important that SMEs have virtuous payment loops to avoid going bust. Global insolvencies are expected to rise by 8% in 2020 for the fourth consecutive year, and one in four bankruptcies for SMEs comes from a non-payment.”
Singapore SMEs – Survey Findings
In the Global Business Monitor study conducted by Bibby and Euler Hermes, Singapore SMEs are defined as enterprises with operating receipts of no more than S$100 million or less than 200 workers. This accounts for 72% of the 3.5 million people employed across Singapore in 2019. As of September 2019, there was an estimated 261,000 SMEs in Singapore.
The survey showed that SMEs are optimistic about their growth opportunities, with 80% believing there are opportunities for their business. SMEs identified multiple avenues of growth including finding new market segments (22%), and trading internationally (13%). Against this backdrop of optimism and expected growth, 86% of SMEs plan to invest in their business in 2019, with the majority of investment ringfenced for existing staff (training and development) (41%).
Despite economic growth in 2019 having been downgraded to “0-1%” , SME optimism showed signs of improvement, rising 8 points to 42%. However, the challenges facing businesses in Singapore remain the focus for most of the SMEs. 49% of surveyed local SMEs view rising overheads and costs as a major challenge, while 45% struggle with cashflow in their business. Furthermore, many concurred that cashflow is expected to be their biggest obstacle in the next 12 months as collecting payments from customers on time remains the most difficult.
Notably, Singapore is ranked one of the highest in having to wait 30 days or more to receive payments, with an average payment duration of 41 days. In contrast, German SMEs are paid almost three weeks quicker at an average duration of 16 days.
On the other hand, Singapore has one of the lowest cases of bad debts (26%) while the US (30%) is slightly higher and the UK (23%) slightly lower.
Utilisation and access to external financing
With majority of SMEs looking to invest, there is a clear demand for finance. According to the findings, nearly one in three (30%) local SMEs utilise external and alternative financing and 18% are likely to apply in the next 12 months. Reinvestment of company profits was also one of the main sources of funding, though it fell to 28% in 2019 as compared to 47% in the last survey findings in 2017.
However, 60% felt that the application process for financing was tedious, and numerous start-ups found it difficult to gain access to external financing as they had not been trading long enough (43%). The number of bank loans also remain low at 11% with factoring even lower at 2%.
In order to finance investing in their business, 39% said they would consider factoring as a potential source of financing and 30% would consider peer-to-peer funding or online funding. While many consider the ease of use through online funding (70%), a large proportion (44%) also cited data security as a reason not to undertake it, and this poses a great challenge to SMEs when considering types of financing besides traditional bank loans.
Having access to financing will help businesses maintain a steady and positive cashflow and allowing them to invest in themselves. 71% cited favourable financing conditions as the factor that would make the biggest difference to their business.
Alan Wong, Managing Director of Bibby Financial Services Singapore, remarked: “We noticed a very small percentage of SMEs in Singapore utilise factoring to finance their businesses, when in fact, factoring could greatly help them alleviate some cashflow pressures. Factoring allows SMEs to release a large proportion of an invoice’s value, which boosts cashflow without the need of a loan. Late payments and bad debts are effectively reduced through account receivables management and collection services that come with factoring engagement. With the unlocked cashflow, business owners can then focus on other essential day-to-day activities to aid in business growth and continuity.”