Covid-19 leaves creditors gasping for air

SINGAPORE (Apr 6): As the Covid-19 pandemic leaves local companies struggling to maintain their cash flow, payment performance for Singapore firms plunged to a new three-year low for the first quarter of 2020. 

According to data from the Singapore Commercial Credit Bureau, overall prompt payments dropped by 3.03 percentage points (ppt) quarter-to-quarter from 46.23% in 4Q2019 to 43.20% in 1Q2020. Year-on-year, prompt payment numbers crashed 8.5ppt from 51.70% in 1Q2019.

This is the lowest rate of prompt payment since 3Q2016, when Singapore recorded 42.18% in prompt payments. The all-time low for the decade occurred in 1Q2015, with only 39.04% of creditors paying up on time. 

The moribund performance came on the back of cash flow difficulties arising from the onset of Covid-19. A sharp drop in global demand and more limited business operations arising from tighter social distancing measures have left smaller firms desperately conserving cash flow in order to stay afloat. 

Manufacturing appears to be the worst hit by the onset of the coronavirus: slow payments by manufacturing firms rates rose 4.67ppt q-o-q from 39.13% in 4Q2019 to 43.80% in 1Q2020. Most affected were petroleum and coal manufacturers, who experienced a 9.46ppt rise in slow payments q-o-q, followed by manufacturers of chemical products which were up 6.13ppt q-o-q. 

The service sector, however, experienced the highest y-on-y increase in slow payment rates, recording a 9.19ppt increase from  34.49% in 1Q2019 to 43.68% in 1Q2020. Recreational services and hotel and accommodation businesses recorded the greatest increases in slow payment rates q-on-q -- up 13.60ppt and 4.93ppt respectively --  following a sharp decline in demand for tourism and accommodation.

Prompt payment rates are expected to decline further going forward as a prolonged pandemic further pressures cash flows. The expected passage of the Covid-19  (Temporary Measures) Bill may also see firms taking advantage of the temporary relief for contractual non-performance, delaying contractual payments to tighten their bleeding coffers. 

“The marked deterioration in payment performance is a clear sign that firms are struggling to meet their debt obligations with creditors,” commented Audrey Chia, chief executive officer of D&B Singapore, “We are expecting the downtrend in payment performance to continue as firms are exposed to a higher risk of payment delinquency in the months to come.” 

The economy contracted 2.2% y-on-y in 1Q2020, reversing from a 1.0% growth in 4Q2019. Singapore will enter a recession in 2020 with GDP growth projected at -4% to -1%.

Source: Theedge Singapore

1 view0 comments