World Bank hints of possible delays in loan repayments by SMEs

In its recently released annual report that focuses on interrelated economic risks worldwide, the World Bank has raised concerns about possible delays in loan repayment by micro, small and medium enterprises (MSMEs).

According to the report, MSMEs make up over 90% of all firms and employ 60–70% of the working population and contribute 50% of GDP worldwide. Hence, their survival is crucial for post-pandemic economic recovery.

Carmen Reinhart, the World Bank’s chief economist, says 46% of SMEs in developing countries may not be able to pay their debts within six months, and the number is even higher, at 65%, for bigger emerging countries like India, South Africa, the Philippines, and Kenya.

The chart below shows that 90% of SMEs in South Africa are at the highest risk of defaults within six months.

The South African government is aware of the cashflow problems that SMEs are facing. To ease their burden, the government in its recent budget announced a new business bounce-back scheme wherein it will guarantee a certain portion of loans availed by SMEs.

In Singapore, the government has also set aside a S$500 million support package and introduced various other measures for SMEs affected by pandemic-related restrictions.

Such government measures will certainly provide some help to SMEs. But small businesses should know that government support will be removed one day. So, now is the time to prioritize your company’s receivables and get your cashflow in good shape so as to cushion yourself from future shocks.

SMEs should start handling their payment by developing the Virtuous Revenue Cycle which focuses on servicing, trust-building and building customer loyalty. The cycle includes eight principles to focus on starting with top-down ownership of the issue, having a clear credit policy, accurate invoicing, proactive customer service, resolution mechanism, root cause elimination, having a motivated sales team, and having a balance scorecard.

When you build this process and the whole team recognizes its importance, you will see your invoices start getting paid on time and cashflows getting better and better.

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com