Singapore’s vibrant, thriving food and beverage (F&B) industry is a bright spot in the economy, showing signs of robust growth in the face of uncertainty. As of April 2023, all F&B services industries recorded year-on-year growth, according to data from the Singapore Department of Statistics:
- Food caterers: 61%
- Fast food outlets: 20%
- Cafes, food courts, and other eating places: 14%
- Restaurants: 8%
With this growth comes plenty of opportunities, but not everyone can take full advantage of it. Small and medium enterprises (SMEs) in this space, for instance, often do not have enough working capital to really grow their business. Many face cash flow problems, which can strain their relationships with suppliers and have other far-reaching consequences down the road.
It can also be difficult for them to get funding from traditional financial institutions. A 2022 study found that the biggest barriers to funding for SMEs in Singapore are weak cash flow (36%), difficult collateral requirements (34%), tedious application processes (29%), rigid lending criteria (29%), and the lack of a business plan (29%).
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How Cash Flow Problems Can Damage Your Relationship With Suppliers
A harmonious working relationship with suppliers is critical for business. It helps protect your reputation, ensures the availability of essential supplies, and may even give you a leg up when negotiating for a fair price.
Several things can hurt this connection:
- Cash flow issues: Factors like seasonality, fluctuating sales, and high operating costs can affect your cash flow, which means you may have trouble paying suppliers on time. Your suppliers, however, have their own financial obligations to fulfil and, as such, need your payments to be timely and complete.
- Not meeting credit and payment terms: Establishing credit terms is common in the restaurant industry, allowing businesses to purchase supplies on credit and pay within a specified period. But failing to meet the agreed payment terms or delaying payments will damage your credit standing. Suppliers may then become reluctant to extend credit or offer you favourable terms.
AP Financing: a Fast, Accessible SME Business Loan
One way for SMEs to revitalise their cash flow is through Accounts Payable (AP) financing. AP financing is a quick cash advance to cover the amount you owe your suppliers, effectively turning your accounts payable into a source of short-term financing. This means you can settle dues on time even if you’re short on cash.
You can access this type of business loan through companies that offer short-term financing for SMEs. These companies may be funded by individual and/or institutional investors.
The financing company pays your suppliers on your behalf, charges you a fee for the service, and collects the amount from you after an agreed-upon payment period.
What You Get:
Terms may vary across providers, but with companies like Funding Societies, you receive:
- A cash advance to cover 100% of your supplier’s invoice but with a maximum loan amount of S$500,000
- Tenor of up to 90 days
How Accounts Payable (AP) Financing Works
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Benefits of AP Financing:
- Get funds quickly and improve your cash flow
Approval is typically faster compared to financing from banks and other traditional loans. Funding Societies, for instance, pays your suppliers within three days and collects payment from you up to 90 days later. This gives you enough cash to settle any immediate financial obligations, optimise your operations, weather lean seasons better, and maybe even invest in growth opportunities.
- Be in a better position to negotiate for discounts
Because the financing company settles your bill in full within just a few days, your suppliers may be more willing to offer better rates. Paying suppliers on time also helps create an image of reliability, which then improves your credibility.
- Spend less time on tedious loan applications, more time growing the business
Compared to business loans from traditional institutions, AP financing’s application process and document requirements with FinTech companies can be a lot simpler. With Funding Societies, you only need to prepare 10 documents for the regular AP financing scheme and less than four documents for the Express AP financing option.
- Enjoy on-the-go management of your finances
Some financing companies have easy-to-use digital financing platforms that you can also access through a mobile app. Others may even have an all-in-one financing and payments platform.
There are several other financing options available to SMEs in Singapore, however, so you’ll need to carefully weigh the pros and cons of securing this type of loan over other types before deciding what’s best for your business.
Alternatives: Accounts Receivable Financing & Supply Chain Financing
Another way for SMEs to improve cash flow is through Accounts Receivable (AR) financing. Also called “invoice financing,” AR financing lets you receive advance payments on invoices that your customers haven’t yet settled — kind of like converting the money they owe you into a cash advance. The financing company absorbs the risk of the unsettled invoice, gives you the cash, and charges a fee for the service. This means you’ll be able to pay your suppliers on time even if your customers still haven’t paid you for the products or services you’ve provided.
AR financing may be helpful for caterers and other F&B businesses that have a steady stream of invoices that are not settled by their customers immediately.
Another option that could be suitable for those in F&B is Supply Chain financing. Funding Societies works with corporate partners – called “anchors” – to provide financing to these anchors’ supply chain partners. There are two options: Buyer Financing, which lets anchor suppliers extend pre-approved credit lines and longer credit terms to their buyers, and Supplier Financing, which allows anchor buyers to offer pre-approved credit lines to their suppliers.
Supply Chain financing may work for businesses that have a pool of regular buyers or suppliers.
Is AP Financing Right for You?
For Singapore F&B SMEs with high volumes of payments to suppliers, or whose suppliers don’t offer credit terms, Accounts Payable (AP) financing may be ideal.
To qualify for AP financing from Funding Societies, you must:
- Be a Singapore-registered business
- Pte Ltd or LLP Incorporated, with an operating history of more than 12 months
- Not have current or previous loans or facilities with Funding Societies that are more than 30 days past due
Ease Cash Flow Woes and Keep Suppliers Happy
Singapore’s food scene may be dynamic, but with F&B being a cash-intensive industry, and with traditional loans out of reach for many SMEs, restaurants and other food businesses still struggle with cash flow.
If you’re eligible, AP financing may help bridge your working capital gap.
As a unified SME digital finance platform, Funding Societies offers several options to help you take advantage of opportunities to grow your brand. Contact us to find out more about AP financing and other services for your F&B business.
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 Payable Financing is fulfilled by FS Capital Pte Ltd (in partnership with Enterprise Singapore).
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