Over $13b of arrears owed to Hong Kong SMEs in 2018

More than one in ten invoices were left unpaid.

A total of $13.34b worth of invoices were paid late to small businesses in Hong Kong in 2018, according to small business platform Xero.

Xero’s data also found that in 2018, more than one in 10 or 13.87% of invoices from Hong Kong’s small and medium-sized enterprises (SMEs) worth a total of $7.89b were left unpaid. Only slightly more than half or 56.04% of total payments to Hong Kong small businesses were made on time.

“Unfortunately, dealing with late payments is part and parcel of running a business. If the money is tied up in late payments, small businesses struggle to maintain positive cash flow, raise the capital needed for investments and grow their business,” Kevin Fitzgerald, regional director - Asia at Xero, explained. “Small businesses in Hong Kong are already being held back from growing and flourishing in the current trade environment, and it is likely to have a knock-on effect very soon, with business owners worrying about paying for basic expenses such as rent.”

A separate report revealed that 81% of Hong Kong businesses are pessimistic about the trade negotiations, with 2019 recording the weakest start to a year over the past decade.

Xero noted that small businesses that rely on trading with the US have to prioritise exploring new suppliers and customers. “This could be the crisis that drives ambitious entrepreneurs to seek out new markets that aren’t affected by crippling tariffs but instead motivates SMEs to look further afield and seek growth elsewhere,” the firm highlighted.

The Hong Kong government is offering support to these businesses to overcome their financial challenges in the short-term, wherein small businesses can receive a 20% higher credit limit of $5m when doing business with US importers.

Also read: Grant ceiling for SME fund doubled to $1m

Another challenge to getting fluid cash flow is due to cross-regional payment processing roadblocks, Xero added. A survey conducted by American Express found more than half of all payments between Hong Kong’s SMEs and mainland China still use old-fashioned cross-border payment methods, which include telegraphic transfers (89%), cheques (67%) and banker’s drafts (61%).

“Business owners should also consider using digital tools to record their transactions, which will make it easier to automate the invoicing process, and enable payment collection through platforms such as PayPal and Stripe,” Fitzgerald said. “Overall, business owners get real-time visibility into their cash flow to foresee financial challenges, thus giving them time to access credit in advance.”