Support from Singapore Government Invaluable for SMEs Battling COVID-19 Headwinds: Experian
- Overall business outlook among SMEs increasingly negative, with both external and domestic facing sectors impacted by disruptions to global supply chains and social distancing measures.
- Top challenges faced by SMEs in the last three months of the COVID-19 outbreak were late payment from customers, canceled orders, and cash flow issues.
- Most SMEs are adopting measures such as from work from home models or reduced business hours to manage operational costs.
- Supporting initiatives in the Unity, Resilience, and Solidarity Budgets have been invaluable in helping SMEs protect jobs, improve cash flow, and defray business operational costs.
SINGAPORE, 18 May 2020 – Singapore’s SMEs have been hit hard by the COVID-19 pandemic, facing challenges such as cash flow disruption, flagging sales, and delayed customer payments. However, most organisations have been able to benefit from the supporting measures in the Unity, Resilience, and Solidarity budgets to ensure the business stayed afloat. These findings were based on a survey conducted by Experian in April 2020 involving responses from more than 200 Singapore SMEs.
With respondents from key sectors such as Manufacturing, Construction, Services, Retail, Wholesale, Hospitality/F&B, and Transport/Storage, the survey provides a measure of how Singapore’s SMEs have fared against economic stressors arising from the COVID-19 pandemic between February to April 2020. Responses also shed light on the challenges SMEs have been facing, the risks faced by each sector, as well as the impact of government intervention.
Business Optimism Dips Among SMEs
The overall business outlook among Singapore SMEs has turned increasingly negative amidst COVID-19 headwinds. This survey has revealed that only 10 per cent of SMEs were positive about business prospects for the year (>0.5 per cent growth in sales compared to the previous year), while 47 per cent of SMEs had a negative outlook (decline in sales compared to the previous year). The remaining 43 per cent of respondents adopted a neutral (0 per cent to 0.5 per cent growth in sales compared to the previous year) stance, possibly looking for any signs of potential recovery in the coming months.
Figure 1: Business Outlook for next 12 months
At least one in two SMEs in the Transport/Storage, Hospitality/F&B, Wholesale, and Retail sectors were determined to be anticipating a decline in sales. SMEs in the Transport/Storage sector were likely to have been impacted by disruptions to global supply chains due to containment measures being adopted worldwide, which has also grounded planes and strained cargo networks. Consequently, the Transport/Storage sector registered the highest percentage of SMEs with negative business sentiments (67 per cent).
The Hospitality/F&B (60 per cent), Wholesale (57 per cent), and Retail (50 per cent) industries registered the highest levels of negative business sentiments after the Transport/Storage sector. Domestic facing sectors would have been impacted by travel restrictions implemented in the wake of the outbreak, leading to an evaporation in tourist arrivals. This is further exacerbated by a reduction in sales to local customers as tightening social distancing measures had already reduced sales before the Circuit Breaker measures implemented in April, which saw the closure of non-essential businesses.
Figure 2: Credit facility profile of 7 sectors
A majority of SMEs in Manufacturing (74 per cent), Transport/Storage (73 per cent) Hospitality/F&B (70 per cent) and Retail (70 per cent) also indicated potential challenges with sufficient operating capital in the next 6 to 12 months. Half of the Services (50 per cent) sector, followed by Manufacturing (48 per cent), Hospitality/F&B (47 per cent) and Transport/Storage (47 per cent) intended to apply for the credit measures introduced as part of the three supporting Budgets.
Delayed Payments and Cancelled Orders Exacerbate Cash Flow Issues
SMEs shared that the top three challenges they had to contend with in months following the COVID-19 outbreak comprised late payments from customers (50 per cent), cancelled orders (42 per cent), and cash flow challenges (41 per cent).
Figure 3: Top Challenges faced by SMEs
The Services and Transport/Storage sectors registered the highest occurrence of late payments from customers, affecting 73 per cent and 70 per cent of SMEs in each respective industry. This may have been due to the disruption to global business operations and supply chains, leading to delayed shipments and deliveries and impacting payment timelines.
Hospitality/F&B (63 per cent) and Retail (47 per cent) SMEs had cancelled orders as their top concern. This was likely due to decreased customer footfall in the wake of the COVID-19 outbreak, which was later compounded by elevated social distancing measures that were part of the Circuit Breaker. According to SingStat, retail sales in March 2020 decreased 13.3 per cent year-on-year. This is the largest drop since September 1998, during the East Asian Financial Crisis.
Among the top concerns of SMEs in Wholesale (37 per cent) and Construction (32 per cent) sectors involved settling outstanding supplier invoices before they were due. This may further challenge the Construction sector which were impacted by tightening social distancing regulations that culminated into the Stay Home notices issued to all migrant workers in the sector. According to advance 1Q2020 estimates issued by the Ministry of Trade and Industry (MTI), the Construction sector shrank by 4.3 per cent on a year-on-year basis, being impacted by a decline in private sector construction activities and supply chain disruptions.
Alleviating Business Concerns through Operational Measures
To cope with the COVID-19 period and to adhere to MTI’s regulations, most SMEs have introduced at least one operational measure to alleviate their business concerns. Work from Home (74 per cent) and Reduced Business Hours (50 per cent) have emerged as the most common measures that most SMEs across all sectors have implemented.
Figure 4: Overall Measures taken by SMEs to alleviate business concerns
More than half of SMEs in the Hospitality/F&B (57 per cent) sector are adopting online sales to continue to cater to their clientele with the Circuit Breaker measures in place. SMEs in the Services (73 per cent), Manufacturing (68 per cent) and Wholesale (63 per cent) sectors have also been reducing business hours amidst the new Circuit Breaker measures.
In an attempt to reduce increase cash flow, SMEs in the Hospitality/F&B, Wholesale and Construction sectors are delaying outstanding invoice payments due by 37 per cent, 30 per cent and 29 per cent respectively. Potentially hinting at challenges with operating capital, SMEs in Hospitality/F&B, Construction, and Transport/Storage have also been taking more credit measures during this period. 23 per cent of SMEs in the Hospitality/F&B sector are seeking to defer loan payments; whereas 20 per cent in the Transport/Storage sector and 13 per cent in the Construction sector are seeking refinancing.
SMEs with Credit Facilities More Likely to be Experiencing Cash Flow Challenges
A higher proportion of SMEs with credit facilities were observed to be dealing with business challenges, particularly cashflow issues, suggesting that many of these SMEs operated with a reliance on strict payment timelines to manage their day-to-day cash flow.
SMEs with credit facilities were also more likely to delay outstanding invoice payments due (27 per cent) in comparison to SMEs without credit facilities (14 per cent). Companies with credit facilities would be looking to delay payments likely in a bid to improve cash flow to service existing credit lines.
Timely Government Intervention helping SMEs remain resilient in the Economic Crisis
Between the months of February and April 2020, the Singapore government issued a number of supporting measures in the Unity, Resilience, and Solidarity budgets to aid businesses during the COVID-19 period. The survey findings indicate that these budget measures have had a positive impact, most effectively helping SMEs to retain employees (93 per cent), improve cash flow (83 per cent) and defray business operations (81 per cent).
Figure 5: Budget measures areas which SMEs find useful across all 7 sectors
Totalling almost S$60 billion, the three budgets have been especially impactful in protecting businesses within the Hospitality/F&B, Construction, and Wholesale sectors, with 87 per cent, 77 per cent, and 73 per cent of respondents indicating so respectively. However, despite the measures, some sectors such as the Hospitality / F&B, Construction and Wholesale sectors indicated a need for sustained support in areas surrounding employee retention and managing operating costs, especially with cash flow concerns still playing on SMEs minds.
Gradual Economic Recovery Expected
According to the Monetary Authority of Singapore (MAS), the Singapore economy is set to enter a recession this year. This follows the MTI's move to downgrade the 2020 growth forecast for Singapore to -4.0 per cent to -1.0 per cent with no sustained improvement observed around the pandemic. The MAS acknowledged that Singapore’s economic growth could potentially dip below the MTI forecast, being largely dependent on how the pandemic evolves and the efficacy of policy responses around the world.
Prime Minister Lee Hsien Loong also acknowledged in his May Day 2020 speech that the recovery of Singapore’s economy will be a gradual process. This will mean that certain sectors, especially those that rely on human traffic, may potentially be facing a longer wait for a return to normalcy. The MAS also cautioned that trade dependent sectors may continue to face challenges due to weak external demand and disruptions to global supply chains.
Said James Gothard, General Manager, Credit Services & Strategy, Southeast Asia, Experian, “With considerable uncertainty on the horizon, SMEs are understandably concerned about their business prospects. However, the close collaboration between Singapore’s public and private sectors have proven invaluable in effectively shaping government response and intervention to help SMEs remain resilient despite these unprecedented economic conditions. This is reaffirmed in our survey findings, which suggests that the government supporting measures have indeed been useful in mitigating some of the economic impact to SMEs.”
He continued, “SMEs will also need to do their bit to reframe and transform their approach to doing business when the economy opens up to a new reality. Investments that the government has made in areas such as digitalisation and skills future are likely to be critical to help SMEs and employees.”
Read full article
Experian to facilitate creditworthiness checks for consumers with users’ credit information submitted by all accredited BNPL players in Singapore.Learn more
Experian has ranked #9 on the newly announced 2022 IDC FinTech Ranking, jumping from its previous position at #11. The FinTech Rankings is an annual ranking which highlights the top…Learn more
Consumers surveyed in six APAC markets are most vulnerable to online fraud on social media sites, a new Experian report showsLearn more