Delays or non-payments posing huge risk to SMEs

SUBANG: The “bad habit” of delaying or not making payments pose a huge risk to small and medium enterprises (SMEs), said Minister in the Prime Minister’s Department Datuk Seri Dr Wee Ka Siong.

SMEs could no longer afford this bad business culture of making late payments, he said.

“SMEs will face credit constraints when customers are slow or fail to pay. And this poses one of the highest risk to SMEs.

“When an enterprise is unable to meet its financial obligations, it goes into insolvency and this may spill over to other companies which are their suppliers,” said Dr Wee during the Trade Credit Pledge Conference at Inti International College Subang.

With the implementation of the Goods and Services Tax, he said, late payments would add another blow to the cash flow of SMEs.

“Too often, SMEs have to endure months without payment,” he said.

Dr Wee welcomed the initiative by the Malaysia SME Media Group, Inti International College and the Joint Secretariat for the Trade Credit Pledge.

The move seeks to get multinationals, government linked companies and public listed companies to sign a pledge to pay their SME partners on time as part of their corporate social responsibility.

Dr Wee also urged businesses to change and emulate Japan’s business culture which strictly followed credit term which is 30 days or even two weeks.

A survey by the SME Media Group and Inti International University showed that making late payments has become a very common problem in Malaysia, with 73% of business operators saying it was Malaysia’s business culture.

It takes an average of 94.1 days for SMEs to receive its dues, said Wee, and the annual bad debt per company stood at RM52,100.

Seven bodies representing various SMEs, including the SME Association of Malaysia signed the pledge at the event.

Dr Wee described the move as a significant milestone to kick start the movement to get 50 trade associations to sign the pledge by the end of the year.