Here’s a horribly familiar scenario for many small and medium-sized enterprises (SMEs) in Southeast Asia: a post-pandemic surge in business, while beneficial for SMEs’ bottom line, has stretched their working capital thin, leaving them struggling to pay key suppliers. 

In this situation, SMEs are forced to have cash on hand to pay for supplies either in advance or on delivery, as most lack access to flexible terms from their suppliers, or other financing avenues to make good on their payments. 

We found this pattern emerging from our survey of about 1,000 SMEs in Indonesia, Malaysia, Singapore, Thailand, and Vietnam: payables have become a “critical” issue for SMEs in the region, with few easy solutions in sight.

SMEs might find a fix in FinTech financing platforms and trade financing programmes, provided both SMEs and suppliers overcome a few key barriers. 

SMEs need to win the trust of suppliers, while suppliers need to understand how to work with financing platforms and trust their programmes. Financing platforms must also demonstrate trustworthiness and customer success, to a potential customer base that tends to be wary of novel payment methods. 

Payables an increasingly critical issue for APAC SMEs in 2023 1

Payables are an increasingly urgent issue

With the exception of Singapore, payables outweigh receivables as a critical issue for most SMEs in the region. More than half of businesses surveyed in Indonesia, Malaysia, Thailand, and Vietnam admitted that payments to suppliers were more urgent as an issue to solve, as opposed to payment from customers. 

This data suggests that cash outflow is a bugbear for most SEA SMEs. In our report, we parsed the top payables problems experienced by SMEs in the region – getting access to financing and making payments topped the list, the latter applying particularly to suppliers or vendors that do not give flexible payment terms. 

Getting access to financing appears to be a more widespread problem in Indonesia, Malaysia, and Thailand, where 40% or more of surveyed SMEs identified this top challenge. 

A similarly-sized cohort of SMEs in Vietnam identified making payments as a top challenge. On the other hand, the percentage of Singapore businesses that reported difficulties getting access to finance was lower than the region at 31%. 

This data paints a more nuanced picture of the region’s growing trade finance gaps, which “hits hardest on small and medium-sized enterprises… the top drivers of growth and jobs, especially in developing countries,” explains a recent Asian Development Bank (ADB) report. “While they accounted for 41% of applications for trade finance, SMEs made up 52% of rejections in 2020.”

The ADB report notes the significant growth of the regional trade finance gap, which was estimated “at US$1.5 trillion in 2018 and had risen to US$1.7 trillion by 2020,” the report continues. In August 2022, it was “estimated to have topped US$2 trillion due to rising risk aversion and inflation eating into lending limits.”

Payables an increasingly critical issue for APAC SMEs in 2023 2

How do SMEs deal with their payable problems?

Accessible credit is hard to come by for SMEs in the region, as our study shows. For instance, less than one-third of SMEs in Indonesia, Singapore, Thailand, and Vietnam benefit from credit terms offered by suppliers. This results in SMEs needing cash on hand to pay for supplies either in advance or on delivery. Such a lack of flexibility can restrict an SME’s cash flow and limit their ability to expand their operations. 

Apart from Malaysia and Indonesia, less than a quarter of businesses surveyed in the region reported that their suppliers accepted credit terms as payment. This problem was most significant in Vietnam, where only 10% of businesses reported having the privilege to pay on credit terms. 

Despite the situation, SMEs can still obtain funding to pay suppliers using various means. Business term loans, credit cards, invoice financing, and cross-border transactions, expense management, and invoice financing are some of the options available — though the preferred methods vary from country to country. 

Business term loans 

Business term loans provide an injection of funds that allows the business to purchase equipment, invest in new products, or cover a cash flow shortfall, among other things. Businesses can choose to pledge collateral to the banks for a secured loan, or take an unsecured loan which can come with higher interest rates. 

Our study finds that this option is most often accessed in Indonesia, Malaysia, Thailand, and Vietnam. Regardless of the jurisdiction or the type of loan taken, a business needs to present sound financial statements when approaching their local financier to apply for a business term loan. 

Credit cards 

A business’s credit card can be used to make payments to vendors if the business is short on cash. The way it works is no different from an individual’s credit card payment — the business can pay their vendor for the amount invoiced on the spot, and buy time for their future purchases by taking a short-term loan from the financial institution that issued the card. This option is most popular in Singapore and Vietnam. 

Other popular financing options used in the region include invoice financing in Thailand – where a business can access cash upfront against the value of their unpaid invoices; and expense management in Vietnam, where a company tracks, organises, and controls their cash flow more rigorously. 

Payables an increasingly critical issue for APAC SMEs in 2023 3

Alternative options for resolving payable problems

Beyond these common options, SMEs have other avenues for funding to help solve accounts payable problems. 

  • Accounts payable financing allows a business purchasing goods to pay a vendor for goods they need through a third-party financing company. The business pays interest to the financing company until they have sufficient funds to pay off the debt. This method allows the business to maintain a relationship with a vendor. 
  • Supply chain financing allows vendors to request payment from a business’s financial institution upon delivery of goods or services. Instead of submitting an invoice to the business and being paid at a later date according to the business and vendor’s payment agreement terms, the vendor receives payment immediately from the business’s financial institution, and the financial institution can in turn provide an extension on the payment period to the business. 
  • Cross-border financing refers to financing options that occur beyond the borders of a business’ home country. This option allows businesses to participate in international trade by providing a funding source that enables them to compete globally. 

Payables an increasingly critical issue for APAC SMEs in 2023 4

Solving the persistent payables problem

SMEs are cornerstones of many local economies in the Southeast Asian market. Their smaller size allows them to be more nimble and expand more rapidly. However, their size might also cause limitations that larger entities may not face. 

Based on our report findings, we believe that many SMEs are falling behind on payables issues — but the problem is not completely insurmountable. Small businesses throughout the region can face their payables issues head on by turning to the right cash flow solution within their reach. 

Looking for a definitive fix to your own enterprise’s payables issues? Read our SME Digital Finance and Payments Behaviours study to stay abreast of the solutions at your disposal, along with latest happenings in the Southeast Asian SME space.

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.

Funding Societies’ Accounts Payable Financing and Supply Chain Financing are fulfilled by FS Capital Pte Ltd.