The Singapore economy grew by 3.6 percent in 2022, slower than the 8.9 percent growth in 2021. The growth was led by the construction sector (with a recovery in output in both the public and private sectors), manufacturing (though slower than in 2021), services, wholesaling and IT. Factoring volume increased encouragingly by 52 percent to EUR 44bn according to FCI statistics, in tandem with the growth and increase in economic activity after the Covid pandemic.
SMEs constitute the majority of businesses in the Singapore economy, with a total count of about 299,000, and they form 99 percent of enterprises in Singapore. The number of SMEs continues to grow steadily year by year. SMEs contribute about 48 percent of the country’s output. According to the Atradius Payment Practices Barometer 2022, 53 percent of B2B sales in Singapore are on credit, indicating that offering credit is still a major trade practice both as a customer retention strategy and in order to remain competitive. Unpaid or late payment invoices formed 49 percent of B2B invoices in 2022, while bad debts or uncollectables averaged nine percent of B2B invoices. Liquidity problems were cited as one of the reasons for B2B payment default. Of the businesses that were surveyed 60 percent mentioned that they chose to outsource their customer credit risk management to credit insurers or trade finance solutions providers. This is another indicator that shows why SMEs incline towards using trade finance (including factoring) as an instrument for working capital and credit cover.
Bank loans to SMEs increased by 8.7 percent in the year to Q3 2022, with outstanding loans of more than SGD 120bn to more than 80,000 SME customers. The Enterprise Financing Scheme (EFS) - Working Capital Loan, which was set up in April 2020 and which provides loans to SMEs, was extended on 1 October 2022 to run until 31 March 2024, with an increased loan ceiling from SGD 300,000 to SGD 500,000. The Government’s risk share for these loans is 50 percent for established businesses and 70 percent for young enterprises. This scheme also includes trade loans such as factoring.
The Working Capital Term Loan scheme remains an important cashflow solution for many SMEs especially those that are not selling B2B, or those businesses that are not suitable for factoring (non-credit terms or non-recurring nature of sales). SMEs who go for term loans are attracted by its features – lump sum drawdown, ease of utilisation (without the need for receivables to be assigned) or perceived cheaper costs (i.e. no recurring service fees or handling fees for every invoice presented as in the case of factoring).
As we conclude this exploration into the economic landscape and the factors shaping the factoring industry in Singapore, we invite you to stay tuned for Part 2 of our series. In the upcoming instalment, we will delve into the market performance and supply dynamics of Singapore's factoring volume, along with a comprehensive analysis of future trends that are set to influence the industry. Keep an eye out for a deeper insight into the factors driving growth and innovation within the Singaporean factoring landscape.
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