Building, credit firms lead cashflow crunch

[SINGAPORE] Cashflow woes have returned to dog local companies, with construction and credit firms the worst hit.

Overall, the average time it takes a company to settle a debt went up by four days to 43 days in the first quarter of this year, going by the latest trade payment data released by the DP SME Commercial Credit Bureau.

For the first time since the second quarter of 2012, companies are taking more than 40 days to pay their bills, the bureau said yesterday. Payment delays by construction firms have almost doubled as the slowdown in the property market bites; they now take 61 days to pay up, from 32 days a year ago. Credit firms take 78 days to settle debts, up from 33 days a year ago.

"Cost has gone up substantially; of course, people are having cashflow problems," said a contractor, citing higher labour costs in the form of increases in various levies and fees and salary hikes as hitting the business.

"The moderation in construction-related activities is clearly underway as property sentiment cools under the cumulative weight of the macro-prudential measures amid a more challenging supply pipeline," said OCBC Bank economist Selena Ling.

"If you look at the construction sector growth in 2013, it already slowed from 8.6 per cent year-on- year in 2012 to 5.9 per cent last year, and we are forecasting growth to moderate further to average 3.6 per cent this year."

While contracts awarded hit $35.8 billion (up 17 per cent year-on-year) last year, a significant portion of that was supported by public-sector construction demand (56 per cent higher at $15 billion) because of various Thomson MRT line contracts and public residential projects, she said.

The construction industry is undergoing change as large government infrastructure projects come to an end, said Ong Siew Kim, senior general manager of DP Information Group, adding that this was not a cause for concern at the moment.

"As one industry leader explained, the industry may be catching its breath after several boom years and companies are managing their cashflow while waiting to book new work," said Ms Ong.

Ms Ling said: "It's probably not all doom and gloom since total construction output is still estimated at around $34-36 billion for 2014, but the driver clearly would be from the public sector, which will help to mitigate the downside risk from the private-sector construction demand."

As to how cashflow problems might affect the wider economy, she said that the key would be the pace of the slowdown in the property market. "There is likely to be some spillover into other related sectors like business services, but the key is the pace of the slowdown and/or correction in the property market going forward."

Francis Tan, United Overseas Bank economist, said that the bureau's data alone is insufficient to conclude that there is a slowdown in the construction sector. "We need to look at other indicators such as property price indices, rental indices, vacancy rates and projects in the pipeline to have better visibility of the sector outlook."

The bureau's findings are based on payments made by more than 120,000 corporations and small and medium-sized enterprises here each quarter.

The days turned cash (DTC) national average - a measure of the number of days a company takes to pay its creditor once the debt is due - increased from 39 days in Q4 2013 to 43 days in Q1 2014. The proportion of severely delinquent debts, defined as those still unpaid 90 days after they are due, rose from 18 per cent in Q4 2013 to 29 per cent in Q1 2014.

Still, Ms Ong chose to put a positive spin on the situation. "DP Info's analysis shows the deterioration in payment behaviour is not across all industries," she said, noting that 10 of the 14 industries tracked had in fact shown improvement in debt-payment behaviour. Indeed, payment delays in construction and credit had caused the DTC to go up.

The credit-related industry, which includes personal and commercial finance providers and unsecured money lenders, had registered large jumps in the first quarter previously, which suggests that the increase may be seasonal.

For example, there was a 19-day increase in payment times by credit-related companies in the first quarter last year, followed by a decrease in payment times in Q2 and Q3.

Ms Ong said: "Many people find they overspend during the festive period between Christmas and Chinese New Year, causing them to delay in payments to creditors. This, in turn, places pressure on the cashflow and debt payment patterns of the lenders."