Managing Receivables an Asia-Wide Problem: SMEs Turn to New Solutions

Introduction

Throughout Southeast Asia, late payments are a source of distress for the region’s small and medium-sized enterprises (SMEs). 

Financial insecurity on the ground often causes clients to delay payments for as long as possible, triggering cascading effects: cash flow crises, reduced resources, and a blow to entrepreneurial confidence that may take many entrepreneurs some time to recover from. 

We found this scenario recurring far too often among the respondents of our recent survey we conducted among almost 1,000 SMEs in Indonesia, Malaysia, Singapore, Thailand, and Vietnam. For many respondent SMEs, following up on late payments was the most widespread issue concerning accounts receivables in the region, particularly in Indonesia and Singapore. 

Larger corporations can use their resources to cushion their cash flow against late payments, but SMEs have no such recourse. The latter rely on prompt payments to keep their cash flow healthy. That means late payments have an outsized negative impact for smaller businesses. 

Through this report, we uncovered a series of other challenges for regional SMEs. Managing credit terms, or the payment terms on the invoice between the buyer and the seller, was the top issue for SMEs in Thailand, and second for Singapore. Processing sales orders was the second biggest concern in Indonesia, Malaysia, and Vietnam.

National differences aside, efficient payment collection systems and innovative financing solutions can help provide a solution for these receivables pain points.

The underserved need for an efficient collection solution for SMEs in Southeast Asia

While payment collection issues are an ongoing reality for small businesses, uncertain economic conditions may make them worse, with buyers struggling to meet their financial obligations on time. 

A recent study linked growing payment delays in the Asia-Pacific to “elevated commodity prices, high interest rates, and tight financial conditions, as well as weak global trade demand,”  which are “expected to curb business activity in 2023.”

The study revealed that the average payment delay for Asia-Pacific businesses has risen from 54 days in 2021 to 67 days in 2022 – more than double the conventional payment terms of 30 days from receipt of invoice. Industries like energy and construction suffer from extended average payment delays, reaching up to 77 days, while retail and pharmaceutical industries experienced the highest increase in duration.

Tech platforms tackling SMEs’ receivables problems

One way for SMEs to deal with the issue of late payments is to use more efficient, technology-based collections solutions for collecting payments more promptly and effectively. 

There’s lots of room for growth in the region: digital adoption for receivables issues remains relatively low for regional SMEs. FSMK found that over 80% of SME transactions in Southeast Asia are still conducted through traditional banks, indicating a huge opportunity for conversion to digital solutions. Cash remains king in Malaysia and Indonesia, while card usage was the lowest in Thailand.  

This continued dependence on legacy methods among regional SMEs has downsides:

• Traditional payment channels often lack real-time payment visibility, which can affect how businesses reconcile their accounts and manage their cash flow. 
• When payments are made via cheques, businesses must wait for several days or even longer for the payment to clear. This delay can cause cash flow gaps, making it challenging for SMEs to manage operational expenses or invest in growth opportunities promptly.
• Manual invoice generation can be time-consuming, leading to delays in issuing invoices to customers. Businesses may also neglect timely follow-ups on unpaid invoices if they rely on manual reminders, or overlook the process due to other business demands.
• Businesses may not immediately identify a failed payment, especially those made through cheques, which can result in further delays in collection and reconciliation.

Digital payment solutions are making some headway, with e-wallets payments more popular than virtual accounts payments across the region at 24% and 7% respectively. Singapore and Vietnam, on the other hand, exceed the regional average in terms of card adoption, at 30% and 33% respectively versus the region’s 28%. 

But even these offer unique challenges, as well. For instance, SMEs that use multiple payment channels need to reconcile the data from these channels, which can also lead to delays in payment. 

Our survey also unearthed opportunities for collections solutions to serve both recurring, high-value transactions and bulk transactions in the region. Recurring or high-value transactions are vital, especially for countries like Malaysia, where a significant proportion of SMEs serve more than 50 customers per month. 

There’s also an opportunity to provide solutions that automate or track payments in bulk to 21 or more suppliers, especially for SMEs in Vietnam and Indonesia.

Efficient collections solutions to help fix late payments

To address these issues and opportunities, SMEs can now tap a wide range of digital solutions to help them collect and track payments more efficiently than they could ever do with legacy tools. 

• Customer Relationship Management (CRM) software with automated reminders, invoice generation, and reporting capabilities can streamline the payment collection process. 
• Accounting platforms like QuickBooks or Xero, and online payment gateways like PayPal offer accounts receivable modules that automate invoicing, send reminders, and track payments.
• Additionally, cash flow management platforms such as Elevate and CardUp enable SMEs to accept payments online (without the need for a payment gateway integration), broaden the range of payment methods accepted (for example credit card and PayNow),  as well as saving time with automated payment reminders and improved reconciliation.

This broad selection of payment options can be confusing, even overwhelming for first-time users. To avoid “tool fatigue”, SMEs can adopt an ecosystem approach that integrates these systems through APIs or unified platforms. 

For instance, a comprehensive financial solutions platform like Elevate can serve as a unified platform for managing financial operations. SMEs can send customised payment links to their customers and set up automated payment reminders via Elevate Receivables; while paying expenses effortlessly with the Elevate Account and/or Debit Card. SMEs can also get additional financing via Elevate Credit Line and Elevate Financing. 

All-in-one platforms such as Elevate ultimately helps SMEs streamline operations, reduce manual tasks, and enhance payment efficiency.

Beating payables problems with external financing solutions

Apart from internally improving payment collections, SMEs in Southeast Asia are turning to external financing to address their receivables problems. 

Business term loans are the most frequently chosen financing option among SMEs in the FSMK survey, with credit cards playing a significant role in Singapore and Vietnam. Notably, invoice financing is a preferred choice in Thailand, indicating its usefulness in addressing cash flow challenges.

In the last few years, SMEs with less access to traditional financial solutions have had a broader range of alternative financing options to choose from. These include accounts receivable (AR) financing and supply chain financing from FinTech companies, which help address recurring receivable issues.

In AR financing, also known as invoice financing, businesses can manage their cash flow by converting outstanding invoices into immediate working capital. By pledging their outstanding invoices, they can access a significant portion of the invoice value upfront, often within 24 hours, instead of waiting for the buyer to make the full payment. 

This method of financing is ideal for businesses in need of consistent cash flow or cash upfront for daily operations, especially if the majority of their transactions are on credit terms.

In supply chain financing, businesses can access early payment for their outstanding invoices, enabling them to meet immediate financial needs. Buyers can offer pre-approved credit lines to their suppliers; the latter receive the option to take early payment at a discount. By offering incentives to multiple parties in the supply chain, this method of financing strengthens relationships while significantly streamlining the payment process.

Shining a light on receivables solutions for SMEs

Late payments are a significant challenge that constricts cash flow and hinders business growth. By embracing innovative collection solutions and exploring various financing options, SMEs are one step closer to overcoming accounts receivables challenges.

Learn more about the financing needs of SMEs, and lucrative opportunities for solutions providers and tech companies across Southeast Asia, in our SME Digital Finance and Payments Behaviours study.

Explore Report

---

Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.

Accounts Receivable Financing is fulfilled either by Funding Societies Pte Ltd, or FS Capital Pte Ltd (in partnership with Enterprise Singapore), depending on the customer profile. Supply Chain Financing is fulfilled by FS Capital Pte Ltd.