There are more than 200,000 SMEs in Singapore making up 99% of enterprises, employing two-thirds of the workforce, and accounting for about half of Singapore’s GDP. We spoke to Mr Alan Wong, Managing Director and Bibby Financial Services (Singapore) Pte Limited about the SME financing landscape in Singapore.
What’s happening in Singapore, and how are SMEs currently being financed?
What are the biggest opportunities in your markets, and which is poised for the fastest growth?
Trading on credit is a norm in the business community and it is also perceived as a way to build business relationship. Therefore the need to finance has grown to correct this cash flow situation as a result of overdue B2B invoices. Global Business Monitor 2017 conducted by Bibby revealed that 68% of respondents were concerned with chasing customers for payments and a vast number of their customers take 30 days or more to make payment while some take in excess of 60 days to pay. Hence there are growing needs for invoice finance to bridge the working capital gap. Receivable management and collection services is increasingly helping companies to relieve themselves from chasing payment so they can invest their valuable time into growing business in an already challenging business environment.
How is trade and supply chain finance changing, and how is BFS positioning themselves to adapt to this?
In 2011, DBS Bank entered into a supplier financing programme with Dairy Farm Singapore, the first known programme for the retail industry in Singapore. This aimed to provide innovative working capital solution in the end-to-end process of the supplier to buyer operating model. There have also been other local and foreign banks offering Supply Chain Finance or buyer approved invoice finance with large corporates (some in electronics and others in Logistics sectors) where suppliers can opt in for the funding solution within the supply chain with the Anchor Buyer.
Apart from banks, certain platform (or Fintech) also provides access to working capital financing through efficient information exchange. They bring buyers, suppliers and financiers together on a single platform, equipped with fast and secure data exchange. Financing options are made available to both seller and buyer through factoring/invoice finance and reverse factoring respectively.
While potentially suppliers funded by factoring companies such as Bibby Financial Services Singapore (BFSS) may fall into the category of Supply Chain Finance, SCF may affect only one buyer of the supplier’s overall receivables. Factoring company typically takes the whole turnover approach or multiple buyers approach of one supplier and therefore the impact can be minimised. While there is potential for factoring company like BFSS to work with potential buyer to establish a supply chain finance, the considerations will always be the supplier profile of the buyer (are they SMEs, large corporates or MNCs, and whether they are key suppliers for the identified anchor buyer) and nature of the industry (whether goods or services supplied are straightforward in nature, and whether transaction size is meaningful for invoice finance).
What are your thoughts on the resurgence of non-bank factors in Singapore, key drivers, and what are the implications of this for MSMEs accessing finance?
In the 90’s there were many non-bank factors in Singapore, some of them were independent, others were finance companies, subsidiaries or entities under the banks. We witnessed a major consolidation of the factoring industry in late 90s and early 2000 where most of the factoring operations were absorbed into the banks. Other smaller factoring companies were either acquired or closed down.
It is interesting to see the resurgence of non-factoring companies in the last few years. But the difference this time is that we see more Fintech and crowd funders entering the space though we do see a few independent factoring companies making the entry as well. Product offerings are also different from the traditional full service factoring offered by the factoring companies. Spot factoring and selective invoice discounting has become the new financing tool available to SMEs where there are flexibilities of not involving collection services (where SMEs collect the payment themselves) and also selecting invoices to be factored. This perhaps is offered in response to the market demand from customers that prefer to have control over receivables to be financed (selective invoice discounting) and to keep the facility confidential from their debtors.
The resurgence of the non-bank factors has helped significantly to serve the under-banked SMEs. These are the companies with limited business record or financials to justify bank borrowings. The SMEs also recognise that factoring or alternative financing can help to support their working capital needs apart from the traditional bank loans and overdraft.
Though non-bank factors are not able to offer pricing as competitively as the banks (who has cheaper cost of funds), they could nevertheless fund the SMEs who are smaller, younger and less financially established to spearhead their initial business growth. It is also the natural progression where such SMEs grow in both their size and business complexity over time, and eventually they will be on-boarded into the banks.
What are your short to medium term plans at BFS?
BFSS believes that client service and dependability is the key to success in the industry. Our plan is to make it easier for clients to deal with us through simplicity and fast turnaround time. SMEs that require factoring expects funds to be granted on time and with certainty so they can continue to do business with a peace of mind. We endeavour to do that by knowing our client’s business and their industries and ensuring a long term partnership with the clients. In the mid-term we may introduce more product to complement our existing facility to offer a more comprehensive end to end funding solution to our SME clients. Pre-delivery funding may be one of those options.