Digitising payments: the first step towards digital transformation

Cash flow is the foundation of digitalisation

In Singapore, SMEs have long been credited as the foundation of the country’s economic success as they contribute approximately half of the country’s GDP1. Recognising SMEs as a key engine of the country’s growth, the government is helping SMEs to unleash their potential through digitalisation. These efforts include launching initiatives such as the SMEs Go Digital to push for greater adoption of tech solutions for both B2B and B2C exchanges. Most owners and managers of SMEs also believe that digital technology can help their businesses grow.

While much emphasis has been placed on the need for more investment to build the digital capability of SMEs for business growth, there is an emerging threat that has been overlooked, but can potentially disrupt these digitalisation plans – cash flow.

A dependable and steady cash flow is critical as it puts a business in a more stable position, with better buying power. To be ready to seize opportunities, SMEs require a strong cash flow to facilitate their digitalisation efforts, which, in turn, helps the business keep up with market trends, remain competitive, and expand.

However, more SMEs in Singapore continued to face cash flow issues last year, according to DP Information Group’s 2017 SME Development Survey2. The finding highlights SMEs’ pain points when it comes to cash flow management, and what can help them to build a solid financial foundation to support digitalisation transformation.

Delayed payments and manpower constraints are affecting SME cash flow

A fundamental problem that hinders cash flow is delayed payments. Based on the Visa Cash Flow Visibility Index 20173, 58.9% of businesses in the Asia Pacific region take up to three days to access received funds. The same study also reveals that it takes 9.1 hours for Singapore businesses to prepare a payment run internally, followed by another 4.5 hours for the bank to process. This long payment process leads to delays in payments and, subsequently, forces companies to lose valuable turnaround time for cash flow management.

Besides delayed payments, the lack of manpower, which remains a major concern for SMEs in Singapore, also has a significant impact on business cash flow. With tight manpower resources, SMEs have to balance accounting tasks with the day-to-day running of a business. However, some SMEs still rely on their staff to process and check payments manually, or are still using legacy systems. The RFi Group’s Singapore SME Banking Council study, commissioned by Visa in 2017, shows that 59% of non-debitcarded SMEs still use cheques for conducting transactions, while 47% use cash. According to the Visa Cash Flow Visibility Index3, the current turnaround time for Singapore businesses from invoice generation to receiving payment is 50.2 days when they use cheques. These tedious and manpower intense payment processes and legacy systems tie up staff and are highly inefficient in terms of resource allocation. This inefficiency eventually becomes a drain on cash flow, further stagnating businesses growth.

Automated payment solutions to address cash flow issues

To reduce payment delays and better manage working capital, SMEs should consider automating the payment process, and adopting solutions that offer real-time, push payment capabilities. In fact, real-time transaction systems which offer improved delivery time are already available in the market. With these real-time payment platforms, the payment process is managed by payment network and solution providers, end-to-end.

Invoice management and procure-to-pay automation solutions can intelligently reconcile purchase orders, contracts and invoices, ensuring that the purchasing and finance departments are enabled to conduct real-time procurement and payment. These solutions reduce the time and resources required by banks and their commercial clients to send and receive business payments. Dependable and efficient financial management processes can also help optimise businesses by reducing overall costs and freeing up resources for reinvestment.

GroXers Inc Pte Ltd, an F&B distributor in Singapore, is a prominent example. The company has freed up their cash flows considerably with the adoption of a virtual card solution provided by Visa and Validus, a leading FinTech platform. At GroXers Inc, 100% of their receivables from B2B retailers are now on credit card payment, allowing management to focus on growing their business.

Improved cash flow visibility helps SMEs plan better

Digitised processes and systems not only reduce the time and cost involved in managing cash flow, but also help SMEs improve business planning. For example, spend management solution allows for expenses and payments to be easily tracked in real-time, giving full visibility to data and reporting that can help organisations spot off-limit expenses, and make informed business decisions. The Visa Cash Flow Visibility Index3 shows that Singapore businesses are highly motivated by additional transactional data, seeing it as a major benefit. In addition, enhanced data files are seen as a core element in aiding reconciliation for merchants, and enriching their internal reporting.

The desire for enhanced data, and the demand for quicker and hassle-free payments, presents a huge opportunity for payment solutions in the Singapore market. Financial institutions and banks should work closely to provide effective solutions that can address SMEs pain points. With the adoption of these solutions payments, SMEs are able to build a strong cash flow to improve the overall business health, and utilise resources for digitalisation and expansion.

- Vikram Kshettry, Head of B2B Partnerships, Asia Pacific, Visa -

References: 1 2 2017Media Release FNL.pdf 3 The fieldwork for this second round of the Visa Cash Flow Visibility Index took place in the first quarter 2016. A total of 806 of the top 1,000 revenue ranked corporations across ten markets in the region participated, including 81 of Singapore’s Top 100 revenue ranked corporates, based on secondary data sourced by East & Partners. All enterprises were interviewed on a direct basis using structured interview questions.