13 September 2024

Cash Flow Issues in Singapore Businesses: Next Steps to Take

Businesses in Singapore often face a particularly pressing issue in growth and development: a lack of capital. In a competitive market filled with high operational costs, a lack of cash flow can be detrimental to growing or even starting a business. This makes it vital for companies to address cash flow issues promptly and effectively, so that they can pursue their expansion goals without unnecessary financial strain.
 

To resolve this problem, companies may need to seek credit lines from financial institutions. These credit lines are forms of borrowing that companies can obtain funds from, often up to a pre-existing limit depending on their scale of business operations. Through these credit lines, businesses can obtain the capital needed to meet their operational needs. 

Common Reasons for Cash Flow Issues in Business

Cash flow refers to the net monetary value moving in and out of a company. A business has a cash flow issue when their funds dip into the negative, preventing them from operating their business as normal, financing their projects or repaying their debts.
 

While the specific causes of a company's cash flow management issues can vary widely depending on the industry, there are several overarching factors that commonly contribute to them. These common cash flow problems can include seasonal fluctuations in demand, delays and late payments by customers, inefficient inventory management, or unexpected economic downturns. These common triggers differ across industries, and understanding them is crucial in maintaining a healthy cash flow.

1: Inventory Costs and Over/Under-stocking

Fluctuations in demand can disrupt inventory management. When businesses overstock on raw materials or finished products, capital becomes tied up. This situation reduces their cash liquidity which may lead to issues in other critical areas. On the other hand, underproduction leads to stockouts and lost sales.
 

2: High Operational Costs

Expenses can quickly rise if a business has several orders waiting to be shipped out to their customers. These expenses include logistics and shipping fees, insurance premiums, customs duties and taxes, compliance and documentation costs, and inventory management expenses. This creates a need for substantial capital, especially when the expenses are incurred within the same period. 

3: Payments – Upfront, Delayed and Long payment cycles

There are often also hefty costs that must be paid upfront before any revenue is received from sales. Suppliers often require partial or full payment before production begins or goods are shipped, especially when dealing with new trading partners or large orders. Insurance premiums, letter of credit fees, and costs of ensuring regulatory compliance costs are also usually paid in advance.
 

One of the primary culprits behind cash flow issues in businesses is the prevalence of irregular payment cycles. In industries where timelines can be tight and interdependent, such setbacks can cause a domino effect that may result in large losses and disruptions in cash flow. 
 

For example, delayed payments can cause problems for the manufacturer (also known as the receiver), hindering them from reinvesting in operations or paying their suppliers. This unforeseen delay in payment terms may force manufacturers to use their own funds (which was set aside for another project or order), creating a disruption.
 

Lastly, international trade often involves extended payment terms and longer cycles. As a result, companies may have to wait for months before receiving payments for goods shipped overseas. This significant delay between incurring expenses and receiving revenue places strain on working capital and can interfere with production schedules or the ability to take on new orders.

RHB’s Business Solutions

RHB offers a potential solution to resolving these cash flow issues. Through a range of financing products that target various business needs, we help business owners finance their projects and provide a revenue stream that covers essential costs in labour, materials, and equipment. Business owners can leverage these loans to manage their expenses strategically and ensure the continuation of ongoing projects without financial strain.
 

Some of the benefits of these financial solutions include:
 

• Flexible Loan Terms
   
• Competitive Interest Rates
   
• Comprehensive Support

SME Working Capital Loan

RHB's SME Working Capital Loan is designed to help businesses manage their day-to-day operational expenses effectively. This financial solution offers the flexibility and support that small and medium enterprises need to maintain a healthy cash flow. It provides immediate funds that can be used to cover various operational needs, such as inventory management and supplier payments.
 

Key features of the SME Working Capital Loan include:
 

1. Flexible repayment period of up to 5 years, allowing businesses to choose a schedule that reduces strain on their finances.
    
2. Access up to S$500,000 for an individual borrower, while borrower groups can collectively obtain up to S$5,000,000 in financing, with an overall loan exposure cap of S$50 million per borrower group across all facilities.

This solution provides comprehensive financial support tailored to the needs of Singaporean SMEs. By leveraging the SME Working Capital Loan, businesses can bridge temporary cash flow gaps, take advantage of growth opportunities, and ensure smooth operations without being held back by short-term cash flow constraints.
 

Trade Loan

RHB's Trade Loan can play a crucial role in supporting businesses involved in international trade by providing financial backing for both import and export activities. This versatile financing solution helps businesses manage their working capital needs and smooth out cash flow fluctuations associated with cross-border transactions.
 

Key features of the Trade Loan include:
 

1. Flexible financing that funds various trade-related purposes, including stock purchases from suppliers, structured pre-delivery working capital, bill financing and obtaining bankers' guarantees.
    
2. Maximum loan quantum of S$10 million per borrower and S$20 million per borrower group, with an overall loan exposure limit of S$50 million per borrower group across all facilities.

Resolving Cash Flow Issues in Business with RHB

Addressing cash flow issues is critical for the survival and growth of any business. RHB offers a range of financing options that can effectively mitigate these challenges. By understanding the root causes of cash flow problems and applying suitable strategies for resolution, businesses can maintain a healthy and positive cash flow, helping them accomplish their business goals.

The information presented in this article is accurate as of date of publication.