CASH flow is a major problem for small businesses and retailers who are still reeling from the Covid-19 imposed lockdowns that have interrupted their operations, said a business group.

The Small and Medium-sized Enterprises (SME) Association said these micro-enterprises do not have sufficient cash to buy inventory, resulting in them being unable to open for business.

The main issue for them is that their suppliers are refusing to offer them goods on credit.

“Since May, suppliers have rarely accepted credit payment from their customers. Companies that can’t get any credit payments can hardly protect themselves.

“However long-term customers and companies that are not affected by the lockdown still get their usual billing period (to pay the outstanding balance),” said the association’s president Michael Kang.

He said many SMEs had emptied their funds and were unable to pay their suppliers due to economic depression and lack of market confidence.

“For example, micro-enterprises in the fields of service, retail, manufacturing and agriculture are generally companies with less than 75 employees.

“They cannot repay the loan moratorium because they cannot operate. In addition, suppliers no longer allow credit facilities,” he said.

So far, Kang said 40% of enterprises have scaled down.

SMEs are the backbone of the economy with the country’s 1.1 million SMEs representing around 97% of all businesses in the country and contributing about 38% of Malaysia’s total gross domestic product last year.

Last November, the Companies Commission of Malaysia announced that 30,000 businesses have closed down since the start of the Covid-19 pandemic. That number has increased this year.

The SME association had warned earlier that 30% of SMEs would have run out of cash during this ongoing lockdown, with many looking at permanent closure.

Suppliers also need cash

Meanwhile, Federation of Malaysian Fashion, Textile and Apparel president Tan Thian Poh said there are still a lot of suppliers insisting on a billing period of 30 to 60 days.

“Yet many businesses still fail to pay, leaving them two months in arrears, and the suppliers cannot continue supplying goods.

“If the customer can first pay the first month’s debt, then the supplier will supply the goods for one month.

“The supplier also needs funds to purchase raw materials,” Tan, who is a supplier himself, said.

He added that the customer could first clear the goods at hand and clear the account, then continue to pick up the next consignment later.

Based on Tan’s understanding, credit is granted mostly for the agriculture, retail and manufacturing industries.

In the catering industry, buying food and ingredients is mostly a cash-on-delivery model.

Federation of Sundry Goods Merchants Associations of Malaysia president Hong Chee Meng said grocery stores still used a billing period, while remaining largely unaffected by movement restrictions.

Goods in the grocery store are daily necessities and the payment is billed once a month, Hong said.

Restoring confidence

Chua Tia Guan, head of tax and financial consulting from the Asia Business Centre, said that suppliers will refuse credit when the economy is poor.

It is similar for consumers, merchants or SMEs who would all want to have cash at hand, he said.

Although most of the industry’s capital chain was interrupted by the lockdown, Chua stated that refusing credit is not serious because of the polarisation in the domestic market.

He said if the business is transferred to online trading, then it will still have capital income. If the business is completely closed, there will be no income at all and the reserve funds will be exhausted.

According to the Department of Statistics, the consumer price index (CPI) grew 2.2% year-on-year in July 2021 to 122.5 points, rising for six consecutive months.

Chua said the official CPI has improved, indicating that the market will not continue to be sluggish.

With the resumption of business activities and the improvement of the country’s handling pandemic, both businesses and consumers will restore confidence in the market.

“Political stability does affect the national economy. When investment enters the market, it will create employment opportunities and the people will have jobs,” Chua said.

“Political instability and the epidemic have slowed down the economic recovery, and the people have adopted a vigilant lifestyle.

“To increase revenue and reduce expenditure, businesses now plan for the next six to 12 months,” Chua said. – September 2, 2021.