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How To Improve The Company’s Cash Flow?

How To Improve The Company’s Cash Flow?

Introduction

Cash flow is the amount of money coming in and out of the business. It is a great indication of an entity’s liquidity or its ability to short term obligations. Positive cash flow in the form of cash sales and collections means that the incoming cash is higher than what is going out like purchases and payments. A shorter cash flow cycle or the amount of time needed for a business to convert assets to profits indicates robust profitability. Accounting services in Singapore include cash flow audit and design to improve liquidity and profitability.

The goal is to sustain a positive cash flow at a shorter cash flow cycle. However, the cycle is also dependent on one’s business model and operations. The time between spending cash in making the purchases of raw materials to collections on sales is not totally controllable. But, there are ways we can liven up sustained positive cash flow.

1. Improve collection processes

A significant amount of your cash inflow could be stuck in cash receivables. These liquid assets can easily turn bad and hold up your access to cash. Take a closer look at your Accounts Receivables (commonly known as Trade Debtors). How long is the average collection? Do you see a lot of overdue accounts? Give incentives to good clients and early payors and apply more aggressive collection efforts to delinquent accounts. You may also have to cancel the bad accounts.

2. Keep a closer eye on expenditures

Review your expenses. Check on the items that take a chuck of your expenditures. You might want to find more affordable alternatives or shift to better suppliers. Also, take a look into the smaller items, many of these are avoidable like the interest expenses and penalties.

3. Improve sales campaigns

Call on your sales team to boost their marketing efforts. Are your marketing campaigns still relevant and effective? Is your packaging outdated? Discounted sales and promotions are great at driving up sales, but could negatively affect profitability. Review your customers’ buying patterns and behavior. Do you have more repeat customers or complaints?

4. Open new markets

Widening your customer range will bring in more buyers and improved sales. There are plenty of ways to open new markets – branch out to a new market segment with different products, develop new products relevant to your existing ones, open stores in new locations, or open an online store to capture the online market.

5. Manage inventory

Inventory is ready-to-sell items that are kept in the warehouse. They are liquid assets stuck in storage. Furthermore, keeping your inventory safe costs money, which adds your expenses. Good forecasting and inventory management will ensure enough goods at hand while keeping the warehousing expenses at a minimum.

What Affect Company’s Cash Flow

A business, economic, or environmental crisis can throw off even the most careful and intensive business planning. Natural disasters and unforeseen events are unpredictable and immeasurable. Although we can set aside funds and prepare procedures in preparation for it happening, we cannot fully assess its effects on the business.

In any business crisis, there are several ways we can quickly implement in order to sustain positive cash flow and save the business.

1. Injecting fresh capital

Find new investors who can bring in new capital to the company. Owners can also add in new financing to ensure liquidity and continued business operations.

2. Emergency loans

You can secure term loans to carry the business over the rough patch. Your business bank can offer quick business loans at reasonable interest rates.

3. Discounted Sales

Converting liquid assets to cash through discounted sales is a good way of bringing in badly needed cash. It will also eliminate old stocks and slow-moving items.

4. Government Aids

Governments often provide a helping hand during economic disasters and business crises. In Budget 2020, Singapore Government has announced relief measures to help businesses tide over the trying times. Any business entity can claim for government help, provided that they fulfill the key eligibility criteria. Here are the few statutory bodies and organizations in Singapore that help companies to cope with the company cashflow during this coronavirus crisis:

a. “Helping Our Promising Enterprises” (HOPE) Fund

S$5-million was launched through the partnership between Singapore Business Federation Young Business Leaders Network (SBF-YBLN) and Goldbell Evolution Network (GEN) to provide an accessible short-term working capital loans for local SMEs. Each company can take a fixed quantum of S$50,000 with a tenure of 12 months, at a minimal administrative fee. The affordable interest rates range from 0.5% to 0.75% per month. Funding is secured over the personal guarantee of the company’s directors or shareholders. The allowance to defer the first loan repayment to start from the third month onwards is the HOPE Fund’s attractive feature.

b. Enterprise Financing Scheme – SME Working Capital Loan (EFS-WCL) by Enterprise Singapore

The loan quantum capping is increased to S$600,000 from the previous S$300,000 and the life-span’s extension to March 2021 enhance the previous scheme to help in financing a company’s daily operational cashflow needs for the unexpected COVID-19 challenge. Despite that the risk-share is also increased, the standard loan recovery procedure remains. If the company has an on-going overseas project, the management may also consider the Project Loan scheme.

c. Singapore Budget 2020

Generous provisions in the Budget 2020 were set to provide for the different needs of households, workers, and businesses affected by the pandemic COVID-19. The obligations to pay are reduced through these useful schemes such as the popular Corporate Income Tax Rebate, Property Tax Rebate (up to 30% of the property tax payable) and one-time offset for 3 months of staff wages under Jobs Support Scheme. The enhanced Wage Credit Scheme gives 20% of co-funding for salary increments in 2019, which is higher than the rate for 2020. This is a valuable benefit as a result of a past event. Additional support is also available to help the industries affected by the coronavirus – tourism, aviation, food and beverage, retail, and point-to-point transport services.

d. Temporary Bridging Loan Programme (TBLP) for Tourism Sector

TBLP, an additional cashflow support for local SMEs in the tourism industry, is a newly-introduced measure. Eligible enterprises can obtain loans, from participating financial institutions, of up to $1-million, with the interest rate capped at 5% per annum. It is open for application till March 2021 and the maximum loan tenure is 5 years.

e. DBS Relief Measures and Support

DBS Bank Limited understands that managing the cash flow needs is the top priority of every company. Besides being one of the participating financial institutions under TBLP, the other short-term liquidity relief measures and initiatives offered by DBS include but not limited to:

• DBS customers with existing secured property loans would only need to service the loan interest for the next 6 months, upon effect.
• The due dates for import facilities will be extended up to 60 days.
• Rebates are offered for certain bank services.
• Small business loans (up to S$50,000) can be obtained within 1 working day upon loan acceptance, without the need to submit any financial report.

Singapore Finance Minister will deliver the supplementary Budget on the coming Thursday, March 26. The supplementary measures are additional support to assist households, workers and businesses in surviving through the coronavirus outbreak. We will share the business-related measures in our Facebook and LinkedIn pages. Stay tune!

Do you have other questions or want to know more on how to improve your company’s cash flow? Get the right advice coming from the experts on accounting and corporate secretarial solutions.

Contact Mighty Glory Corporate Solutions today and let us discuss your business needs.

COVID-19: What Can A Company Do To Ensure Sustainability?

COVID-19: What Can A Company Do To Ensure Sustainability?

covid-19

Introduction

From late January 2020 onwards, the world has been plagued with news on the coronavirus disease (COVID-19, previously known as 2019 novel coronavirus). A pneumonia of unknown cause was originated from Wuhan City in Hubei Province of China. Singapore’s strategic location makes it vulnerable to contracting the virus. As of March 16, 2020 (1200 SGT), the accumulated number of cases in Singapore is 243. 109 patients were discharged while the other 134 remain in the hospitals. On March 11, WHO (the World Health Organization) has officially announced COVID-19 outbreak as a global pandemic. The number of cases globally increases daily and different governments impose different strategies and restrictions.

Source: https://experience.arcgis.com

Despite the measures implemented by Singapore Government regarding the containment and prevention of the virus spread, Singapore businesses also play a large part in keeping the community safe, especially those within the company. The Singapore Standard for Business Continuity Management Systems outlined measures to guide Singapore businesses to ensure the safety of their employees and other stakeholders, minimize the disruption in business operations, and help the country in preventing the spread of the virus.

What is COVID-19 (aka Coronavirus Disease 2019)?

The novel coronavirus is a strain of the coronavirus family that also includes Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS). The symptoms of COVID-19 are similar to those of the common flu – fever, runny nose, shortness of breath, cough and respiratory symptoms. The virus is spread between people vis close person-to-person contact and respiratory droplets from coughing.

The prevention and containment of the virus are relatively easy but need the diligence, vigilance and socially responsible behavior of everyone in the community. At the community level, measures to follow include personal hygiene, awareness, appropriate social distancing and proactive seclusion when you are unwell. People are encouraged to avoid crowded places like malls, hawker centers, religious venues, theaters and other large public indoor sites. As much as possible, minimize the social contact even if there is no fever or respiratory symptoms and seek early medical consultation once any symptom approaches. On a personal level, wearing protective masks is advised when you are feeling unwell, frequently hand-wash with soap and having healthy diets to fortify one’s immune system are encouraged.

Wear a mask if you are unwell or having a poor immune system.

How to protect your business from COVID-19?

According to a recent guide published by Enterprise Singapore, companies are encouraged to prepare business continuity plans (BCP) to counter the effects of threats and uncertainties. Here are the four areas to be considered in BCP so as to handle the challenges from the virus outbreak:

Human Resource Management

  1. Assign a crisis contact person (Business Continuity Manager). Set up a group chat or open line for employees seeking advice and information, reporting incidents, or seeking help.
  2. Plan for the continuity of leadership in case of any absences of key executives and decision-makers.
  3. Consider alternative working arrangements such as work-from-home and rotating work schedules to reduce the human traffic in the office premise.
  4. Review relevant employee management policies like sick leave, stay-home notices, company-imposed leave of absence and relevant staff insurance plans. Serious communication and monitoring to ensure that the employees comply with the evolving regulations imposed by Ministry of Manpower (MOM) to reduce the spread or importation of COVID-19.
  5. Defer business travels and events. Make use of the convenient technologies, like video-conferencing or teleconferencing instead of overseas travels.
  6. Observe travel bans and other related news. Obtain the required health and travel declarations from employees who have recently traveled to China and other restricted countries (e.g. South Korea, Northern Italy and Iran), as specified by Singapore Government.
  7. Monitor the health conditions of the employees. Temperature checks, 14-day quarantine with annual leaves and seeking medical check-ups are required for those who insist on proceeding with non-essential and personal travels outside Singapore. Allow alternative working arrangements like work-from-home, video-conferencing and teleconferencing for the period of absence.

Process and Business Functions

  1. Identify essential business activities and employees. Cross-train workers to cover other positions in case of absences. Set up alternate teams and physically segregate the teams to reduce the risk of virus spread.
  2. Educate employees on the preventive measures, infection control and good personal hygiene.
  3. Develop plans and procedures to manage and track the human traffic movement within the office area.
  4. Be updated with the latest news, trends and government’s immediate implementations related to the COVID-19 and disseminate the information to the employees.
  5. Closely monitor the health of the working employees.
  6. Maintain an adequate supply of medical and Personal Protection Equipment (PPE) like thermometers, surgical masks, disposable gloves and disinfectants.
  7. Clean and disinfect the frequently-accessed or commonly-exposed company premises and areas, where suspected or confirmed cases have been reported.

Supplier and Customer Management

  1. Communicate with your critical suppliers and service providers on the business continuity plans of both parties and make necessary adjustments to allow seamless transactions without compromising the welfare of employees on both sides.
  2. Announce the measures to your regular customers which your company is implementing to protect them and your employees from the disease, without affecting the customer company’s requirements and operation.
  3. Develop a policy for alternative suppliers and service providers. Also determine a specific situation or timing to opt for the alternative delivery options to your customers.

Communications

  1. Appoint a communication coordinator to broadcast on behalf of your company about your company status and business continuity plans (BCP).
  2. Educate your employees to ensure that they clearly know their respective roles and responsibilities in the BCP. Discussion can be done in small groups to test on their understanding about their portion of the plan. A communication channel could be established for them to report their environment, seek for additional information and be well-informed on the impact of the BCP procedures, policies and progress that the company is taking to ensure their safety and non-disrupted business operations during the virus outbreak.
  3. Inform all the relevant stakeholders of the company – suppliers, customers and service providers about the contingency measures that your company has in place for the virus outbreak.

Please follow us at Facebook and LinkedIn for the constant updates in relation to the business management and operation during the current virus battle.

Overview of GST Reverse Charge

Overview of GST Reverse Charge

In Budget 2018, two regimes to levy GST on imported services, are announced to be implemented from 1 January 2020 onwards, namely Reverse Charge regime for Business-to-Business (“B2B”) supplies and Overseas Vendor Registration regime for Business-to-Consumer (“B2C”) supplies.

Reverse Charge Regime subjects the B2B procurement of imported services to input tax or GST. The current GST rule only requires input taxes to be applied on services procured from local GST-registered persons. The Reverse Charge (RC) regime stipulates the transfer of GST obligation to the buyers of imported services intended for business use.

The advent of technological advancements initiated the influx of virtual business solutions. This offered an option for Singapore businesses to procure service from outside of the country. The goal of the changes is to level the GST treatment for services procured locally and those obtained overseas.

Example

Company A obtains payroll services in Singapore from Payroll Company who is based in Singapore, and marketing services from an online marketing solutions provider.

In the current GST rule, Payroll Company has to report the GST on the payroll services in its GST return, while no GST is chargeable for the marketing services.

With the RC regime, Payroll Company will shoulder the GST for the payroll services, while Company A will be accountable for the GST on the marketing services.

Who are subjected to RC?

The following are covered by the changes in the RC regime;

  • A GST-registered entity who is
    1. A business not entitled to claim input tax in full;
    2. An organization who carries out non-business activities (such as charities or welfare groups who offer free or subsidised services, and investment holding companies which derive dividend income) and receives non-business receipts, is not entitled to claim input tax in full; or
    3. A fully taxable person who chooses to apply RC.
  • A Non-GST registered business
    1. Whose total value of imported services, procured within a 12-month period, exceeds the S$1 million threshold; and
    2. Who is not entitled to claim input tax in full even if it was GST-registered.

Exceptions to the Rule

By announcing these changes in the announcement in Budget 2018, this move gave the affected businesses about 22 months, providing ample time to prepare. Once the law takes into effect, no extension will be granted to anyone who might attempt to request for leniency. However, there are exceptions to the rule:

  1. Businesses that create and provide non-taxable goods and services may qualify for partial GST claims. Products and services include but not limited to:
    • Tax-exempt supplies under the 4th Schedule of the GST Act.
    • Zero-rating supplies under Section 21(3) of the GST Act.
    • Non-taxable government services under the Non-Taxable Government Supplies Order of the GST Act.
  2. Businesses that provide free or subsidized products and services.
  3. Regulations 28 of the GST General Regulations or the De Minimis Rule is not satisfied.
  4. RC is not applicable to supplies that have been previously taxed in Singapore.

Example

Singapore Corporation engages Foreign Services to conduct a market research for $20,000. Foreign Services will outsource the job to Local Research Firm for $15,000. After the completion of the project, GST computation is as follows;

Local Research Firm will bill Foreign Services $15,000 plus the 7% GST of $1,050 to get a total of $16,050.

Foreign Services will bill Singapore Corporation $20,000. Singapore Corporation will account for 7% GST on $5,000 as the $15,000 has already been taxed. GST charged to Singapore Corporation for this transaction is $350.

Which transactions are affected?

Although the law was announced as early as 2018, the blanket implementation of the rule is on 1 January 2020. RC will apply to all transactions of the affected services paid or delivered, whichever is earlier, on or after the implementation date.

  1. General Rule – The earlier of when the invoice in respect of the supply is issued and when the payment is made.
  2. Consistent Application – Businesses may also account for RC at the earlier of when the invoice in respect of the supply is posted and when the payment is made, if all GST returns are prepared on the same basis.
  3. RC Business Applying RC At The End of Longer Periods – The day immediately after the last day of the longer period. If the accounting period end on 30th June, the time of supply is 1st July.
  4. Special Rules
    • Intra-GST group and interbranch transactions – The earliest of when the invoice in respect of the supply is issued, when the payment is made, and 12 months after the basic tax point. This rule done not apply to continuous supply of services.
    • Transactions straddling the registration – Services performed before registration can be (a) excluded from RC or (b) the time of supply set to the service date or when the service was rendered.
    • Transactions straddling the de-registration – Services performed before de-registration are subject to RC, with the time of supply set to the day immediately before the de-registration takes effect.
    • As an administrative concession, GST-registered businesses who are unable to accurately determine if they will be partially exempted from year to year, they may elect to apply RC only at the end of the longer period.

Mighty Glory Corporate Solutions provides accounting and tax services, bookkeeping, payroll services, and more corporate solutions in SingaporeConnect with us today to know more about the Reverse Charge Regime and how it may affect your business. We look forward to helping you identify your business needs and provide customized, efficient and holistic solutions.

GST Implication From Customer Accounting

GST Implication From Customer Accounting

Starting from 1 January 2019, customer accounting for prescribed goods is mandatory required under the GST regulations. This is applicable to the supplies of certain prescribed goods acquired by a GST-registered customer intended for business use, provided that it is (a) a local sale of prescribed goods with a GST-exclusive value of over S$10,000 and (b) not an excepted supply.

Customer accounting transfers the responsibility of GST accounting from the seller (or supplier) to the buyer (or customer). The changes are aimed to counter non-reporting and other fraud schemes where the supplier or seller absconds with the collected GST.

Under the Customer Accounting (CA) scheme, the sellers are not allowed to charge and collect GST from their customers. They are, however, required to issue a customer tax invoice that reflects the customer’s GST registration number and a statement to inform the customer of his/her GST accountability, and the application of CA in that purchase. The seller will also have to report the transaction in his GST returns.

What are the Prescribed Goods?

The application of CA is limited to the prescribed goods, which include but are not limited to the following:

  • Mobile Phones – Examples include smartphones, Blackberry, or tablets that can transmit and receive calls and messages over a cellular network. The purchase of a mobile phone is, however, excluded from customer accounting if it comes with a post-paid mobile subscription plan by a local telecommunication service provider. Satellite phones, walkie-talkies, smartwatches, mobile landlines, phones over 17.5 cm in screen size, and smartphone accessories such as chargers, screen protectors, and batteries are not included in the CA scheme.
  • Memory Cards – This category includes memory sticks, Secure Digital (SD) cards and CompactFlash. The exclusions are solid state drive (SSD), thumb drive, dual in-line memory module (DIMM), random access memory (RAM), portable external hard disk, hard disk drive (HDD), and other smart cards with embedded chips such as ATMs, SIM cards, and credit cards.
  • Off-the-Shelf Software – The software included in this category are those that are not specifically customized for the customer. Such software is stored in a CD or similar storage device; or the product can be accessed through a product or license key, activating or other similar code which is provided as part of the purchase. Prescribed goods for CA include software sold in physical boxed packaging like anti-virus, accounting, gaming, design tools, etc. Pre-installed software is not prescribed for CA. Software back-ups stored in CD or similar storage device, Xbox Live, software downloadable from the internet (whose key or code for access is provided via email), and PlayStation Plus are examples of software not qualified for CA.

‘Excepted Goods’ which are not subject to CA, are the supplies of goods made under:

  • Gross Margin Scheme – The computation of GST is based on the gross margin, not the full value, of the goods supplied. This scheme is applicable if (1) the primary business activity is dealing with used goods and (2) the second-handed goods are purchased free of GST.
  • Approved Third Party Logistics (3PL) Company Scheme – Under certain conditions, no import duty or GST is applicable on the supplies of goods from the overseas customers of these approved logistics companies.
  • Approved Refiner and Consolidator Scheme – Either the approved refiner or consolidator can enjoy the certain GST benefits, which are specially designed to ease cash flow and relieve indirect taxability on refining activities for investment precious metals (IPM).
  • A deemed taxability arising from the transfer or disposal of goods at no cost.

When to Apply Customer Accounting

To apply CA, the following conditions must be met;

  • The customer must be a GST-registered person;
  • The purchase of prescribed goods is conducted in the ordinary course of a business; and
  • The value of the prescribed goods exceeds S$10,000.

Connect with us today to learn more about customer accounting and how this may affect and/or apply to your business. We look forward to helping you identify your business and personal needs, and providing you with efficient and holistic solutions.

Foreign Domestic Worker (FDW) Levy Concession

Foreign Domestic Worker (FDW) Levy Concession

Businesses in Singapore are required to adhere to accounting regulations set by ASC or the Accounting Standards Council. Compliance with accounting standards is important to ensure transparency and reliability of a business’ financial information. Transparency and reliability of financial information enable comparability of global financial data and smooth functioning of international capital markets. The increasing number of businesses in Singapore is another compelling reason for entities to adhere to a uniform financial standard.

As a business, it can be time-consuming, exhausting and even downright intimidating, to maintain your seemingly infinite financial records. Hiring an accounting firm is one of the best ways to manage your business’ financial data. With a reputed accounting service provider, you will have an expert to take care of the financial aspects of your business. You can focus more on your core business knowing that your financial matters will be taken care of duly in compliance with the law. An accounting firm will also ensure a robust accounting system, which will give you a reliable and actionable financial base to make business decisions.

Expertise of an accounting firm is the key to your business success.

With Mighty Glory Corporate Solutions, you get a wide range of accounting services delivered by a team with substantial industry experience. We offer a deposit-free accounting service with complete client confidentiality and a transparent fee structure.

If you are in search of a professional accounting firm, then you may want to explore the services such firms offer. Here are some types of services that an accounting firm usually offers business:

Singapore citizens, needing domestic care, can get support from Singapore government through the foreign domestic worker (FDW) levy concession. FDW employers who meet the criteria can qualify for a S$60 monthly concessionary rate.

The following are the employer qualifications for the FDW levy concession:

  • One has to be a Singapore citizen.
  • Living with a child under 16 years old.
  • Living with an elderly person 67 years old and above.
  • Living with a person with disability (PWD) who needs help with at least one daily living activity such as showering, dressing, feeding, or toileting.

Applications for the FDW levy concession must be submitted by qualified individuals. If you have a minor or elderly relative or family member and is qualified for the levy concession, you can follow this link to apply online. The application for FDW levy concession for a PWD is coursed through the Agency for Integrated Care (AIC). Please follow this link for your PWD application.

Please collect the information of the employer, foreign domestic worker and the eligible person (i.e. the person who needs care) to complete the form and application.

No application is necessary if you need the foreign domestic worker for your care or your child’s. If you or your spouse is a Singapore citizen, the levy concession will automatically start on your 67th birthday or upon your child’s birth and will continue until his or her 16th birthday provided that he or she is a Singapore citizen, or on the date your child is granted the Singapore citizenship.

The FDW levy concession is granted for one FDW per eligible person, with a maximum of two FDW per household.

The monthly concessionary rate can be as much as S$120 for FDWs hired to care for an eligible person who needs permanent assistant on at least three daily living activities.

Effective 1 September 2019, the FDW levy concession coverage will include employers needing domestic care for an extended family member or a friend living with them, provided the eligible person is a Singapore citizen, as opposed to the previous limitations of the levy to immediate family members. All existing qualifications applied to immediate family members will also apply to the expanded FDW levy concessions.

Connect with us today to discuss more on the other personal tax reliefs and how we can incorporate them to your personal individual income tax. We look forward to helping you identify your business and personal needs and provide you with efficient and holistic solutions.

If you are in search of a professional accounting firm, then you may want to explore the services such firms offer. Here are some types of services that an accounting firm usually offers business:

Introduction And Impact Of SORA On Corporate Borrowers

Introduction And Impact Of SORA On Corporate Borrowers

On August 30, The Monetary Authority of Singapore (MAS) announced the transition of the interest rate benchmark from SOR to SORA. The USD reliant Swap Offer Rate (SOR) will cease to be relevant upon the imminent discontinuation of the USD Libor or the London Inter-bank Offered Rate. The Association of Banks in Singapore (ABS) and the Singapore Foreign Exchange Market Committee (ABS-SFEMC) studied several replacement options and concluded on the viability of SORA.

What is SORA?

The Singapore Overnight Rate Average (SORA) is an interest rate benchmark pegged on actual transactions. It is the weighted average rate of all overnight cash transactions brokered in Singapore from 9:00 am to 6:15 pm and is published daily on the MAS website at about 6:30 pm.

Why is there a need to transition?

The UK regulatory authorities recently announced the discontinuance of the USD Libor by the end of 2021. This will take away one of the major inputs in the computation of SOR. The volume-weighted average forex rate of USD and SGD is another SOR factor that is looked into as extraneous and causes extreme volatility of rates.

Are there any options aside from adopting SORA?

Aside from adopting SORA, ABS-SFEMC is also looking into two other options – reforming SOR and enhancing SIBOR. Reforming SOR would mean replacing USD Libor with another component. In the US, the Alternative Reference Rate Committee (AARC), endorsed the recommended alternative, the Secured Overnight Financing Rate (SOFR). The SOFR is published by the Federal Reserve Bank of New York at about 8:00 am and is the overnight measure of the cost of borrowing money. However, producing forward-looking benchmarks using SOFR is too complex. Furthermore, SOFR is not intended for the derivatives market and is not expected to be in use until late 2021.

Enhancing the SIBOR is looked into as another option to SOR. The SIBOR (Singapore Interbank Offered Rate) reflects the rate at which banks are willing to lend and is already in use in various financial products, but not on derivatives. However, due to the structural shifts in banks’ sources of funding and derivatives markets towards overnight interest rates benchmark referencing, this option proves to be unsustainable.

Why is SORA the recommended option?

SORA is liquid and deeply reflects the daily trends and conditions of the SGD money markets. Using SORA as a benchmark is aligned with global trends and the transition will result in significant synergies in the global trading capabilities of derivatives. This will put the SGD market ahead in the global trends, encourage and apply best practices and keep domestic derivatives competitive and attractive in the global markets. Daily SORA has been published by the MAS since July 2005, providing accurate data for historical analyses on prices, risks, and market trends.

What happens to legacy SOR contracts?

Existing SOR contracts which will expire after 2021 will remain as is for now. However, expect your bank to notify you regarding the transition in due time. They will provide alternative loan packages that will replace the current SOR-referenced contract to be applied to its remaining term.

How will the transition impact corporate borrowers?

The transition from SOR to SORA is deemed favorable to corporate borrowers. The elimination of the USD/SGD forex factor in the interest rate computation will hugely improve the volatility of rates. The compounded 6-month SORA is more stable and lower than SIBOR, SOR and other benchmarks.

There will be no immediate impact before the end of 2021 and existing SOR referenced contracts will remain as is. MAS and ABS-SFEMC are keeping close tabs on the transition process, making sure the market functions continuously, with the least disruption and hassle to end-users as possible.

Ample communication and public information dissemination will be in place, while banks will be required to provide their clients with enough time, information, and guidance on loan restructuring and contract switching as necessary. Corporate service providers in Singapore such as accounting firms and business outsourcing firms will also be on hand to assist their clients in a smooth transition.

Connect with Mighty Glory today to know more about the transition and to discuss your financial contracts and options. We look forward to helping you with your business needs and in meeting your company compliance requirements in Singapore by providing you with the efficient and holistic solutions.