Small and medium-sized enterprises ( SMEs ) in Hong Kong are facing growing financial strain as rising operating expenses and delayed customer payments continue to erode cashflow and business stability, according to a recent study.

Reflecting similar sentiment, defaults under the 100% Loan Guarantee Scheme for SMEs reached 15.6% by mid-May and are expected to rise further, finds the study by Singapore payments start-up Airwallex.

Meanwhile, the Hong Kong Monetary Authority recently also reported that 35% of SMEs find it more difficult to secure bank loans in the second quarter, up 10 percentage points from the previous quarter, highlighting the growing hurdles facing businesses seeking external support.

In fact, Hong Kong has emerged as the most severely impacted region in the Airwallex report, based on responses from 500 SME owners and decision-makers in the city, with an overwhelming 96% reporting a cashflow crisis within the past 12 months.

This figure is significantly higher than other surveyed markets, including Singapore ( 76% ), Australia ( 77% ), the UK ( 80% ) and the US ( 71% ). Among them, 52% identify rising overheads, including wages, rent and utilities, as the primary cause.

The spiralling costs of overheads is closely followed by a decline in sales or lost contracts, which was cited by 48% of respondents who say this is a key contributor to cashflow issues, while 40% pointed to restricted access to credit or external financing.

Businesses dip into savings, borrow privately

To cope with cashflow challenges, many SMEs are resorting to personal and high-risk financial measures. Over half ( 54% ) reported dipping into personal savings to cover operational costs, with 47% having taken out business loans to manage shortfalls.

Alarmingly, 38% admit relying on personal credit, while 22% say they have borrowed from friends or family – a stark indication of the financial and emotional pressure business owners are under.

The top five ways SMEs are managing cashflow problems involve:

• Savings – 54%
• Business loans – 47%
• Invoice financing – 42%
• Personal credit ( such as loans and credit cards ) – 38%
• Private loans from family and friends – 22%.

Late payments causing losses

Late customer payments remain a persistent and costly issue for business owners in Hong Kong. Notably, 41% say late payments cost them at least HK$2,000 ( US$256 ) every month – equating to HK$24,000 across the year for SME owners.

While the financial burden plays a big role in the success of a business, the effort required to pursue late payments is also draining valuable time from business owners, with nearly three in five ( 58% ) confessing they spend up to five hours a month chasing overdue invoices. Meanwhile, almost 30% say it takes between six to 10 hours, which is valuable time that can be invested in growth and operations.

When tackling non-paying clients, SMEs are deploying a mix of approaches:

• 46% send reminders and follow-up communications
• 42% enforce late payment fees or interest charges
• 40% offer payment plans or negotiates new terms
• 36% end up taking legal action
• 34% escalate to debt recovery or collections agencies.

Overall, 61% of SMEs say they occasionally write off unpaid invoices, while over a tenth of respondents ( 17% ) do so frequently – signalling a level of revenue loss that many businesses are ill-equipped to absorb.

“SMEs are vital in supporting the Hong Kong economy, but many are operating on a knife edge due to rising costs and unreliable customer payments,” says Arnold Chan, Airwallex’s general manager for Asia-Pacific. “Cashflow gaps shouldn’t be forcing business owners to dip into personal savings or take on avoidable debt. These insights highlight just how urgently we need better tools and support for small businesses to manage finances more efficiently and sustainably.”