Cash is King - Founders Drinks (May 2014)

Founders Drinks is a monthly mixer organized by e27 for technopreneurs, innovators and digital leaders to network as well as share knowledge and thought leadership. It usually takes place on the last Wednesday of every month.]

The Founders Drinks session on 28 May brought together 56 entrepreneurs, developers and investors from various industries, to Hood Bar and Café.

‘Cash is king' – a concept fundamentally important for businesses to understand – was the key theme that the speaker, Mr. Benny Chan, Senior Vice President of DBS SME Banking, stressed on. Benny spoke about the function of cash as the "lifeblood of the business" and as a safety net for unexpected financial situations.

He gave an in-depth explanation of the cash conversion cycle, providing business owners with a clearer understanding of how loans can assist businesses to cover financing gaps created by shortfalls in operating cash flow. Without cash, a business' suppliers and creditors cannot be repaid, and owners face the danger of debts overwhelming the business. He also shared concrete steps that a business can take to improve its cash flow position.

View the full content of Benny's talk here.

During a lively Q&A segment, Benny provided further information into the various schemes and loans DBS offers, while offering advice on cash flow management when businesses consider expanding into developing markets..

We've compiled the list of common questions posed during the Q&A session here for your easy reference:

[Q&A]

Qn 1 : How does the DBS Quick Credit work? Specifically, how does KYC happen in the process?

Ans: DBS Quick Credit is a mobile app that offers customers a convenient way to apply for loans on the go. All it takes is only a few minutes for a customer to complete the loan application and get an approval instantly.  It is important to note that although the process is made simpler, the same credit assessment policy and standards apply when the bank assess applicants' credit standings.

Qn 2: What are the common areas in which SMEs go wrong with cash-flow?

Ans: There are three common areas.

The first, is when a major customer fails to pay up, and by major, we are referring to a customer that accounts for at least 1/3 of your default value. This happens when you run a business that is dependent on one customer for more than 20% of your revenue. SMEs should try to reduce their concentration risk (defined as a situation where you rely on a small number of customers for revenue) and develop a good spread of customers.

Another common area is mismanagement of funds. Fund mismanagement happens when business owners enter an industry that they are not familiar with (for example, from consumer technology to construction). There is a high likelihood that things will go wrong, as it takes time to learn the skillsets needed to survive in a different industry. I would advise you not to deviate from your core business unless you have accumulated experience in that other business or have someone to guide you.

The third area is personal integrity issues. There are some business owners who frequently cut corners, trick buyers (by offering inferior products) - these might give the business owner a short-term advantage but will always end badly in the long term.

Qn 3: How can SMEs expand in a developing market where the rules of law are less transparent?  

Ans:   Such developing markets may have attractive business opportunities but I would advise SMEs to be cautious and aware of the risks. Based on my customers' feedback, they end up relying heavily on local partners to help them navigate the market. Another situation is that the local businesses there may end up using banks that may not be reliable. Bear in mind that in an unregulated and lawless market, there is no possibility for legal recourse.

My advice is to work with partners who can help you navigate the market However, you need to be honest with yourself with regards to your partner, and the extent to which you can trust them.

Qn 4: Can you please elaborate on the criteria of loans based on factoring?

Ans: Factoring is a loan where you sell your accounts receivables to the bank, so that the bank can provide you an advance on your receivables. Factoring is particularly useful for start-ups which sell to bigger enterprises. In such cases, they are likely to be able to obtain a higher financing amount or lower interest rate, by leveraging the strength of their customers.

In addition to regular credit risks, banks look at the performance risk of the SME. What this means is that specific attention is paid on the ability of the SME to deliver the goods or complete the project. Therefore, areas such as long track record, past project experiences will come in very useful for SMEs interested in factoring.

Have other burning questions on cash flow management? Wish to pick up more tips on improving your operating cash flow? Consult Benny or any of our DBS SME experts using our CHAT feature below!