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More payment delays in Q2, especially by construction sector

[SINGAPORE] Local companies were less prompt with their bill payments in the second quarter, with the construction sector being the most tardy.

The Singapore Commercial Credit Bureau (SCCB), a body which tracks the credit history of local enterprises, has announced that, for the first time since Q3 2013, payment promptness of local firms fell sharply below the 50 per cent mark in Q2 2014; the fall was by 4.5 percentage points to 47.4 per cent.

Slow payments exceeded 40 per cent, increasing by 3.2 percentage points to 41.1 per cent in the quarter.

Prompt payment is defined as a situation in which at least 90 per cent of total bills are paid within the agreed payment terms; payments are considered slow when more than half of total bills are paid later than stated in the agreed credit terms.

All five industries - construction, manufacturing, retail, services and wholesale - reported slower payments, with construction recording the most number of delays for the second straight quarter.

Payment delays in the construction industry rose 3.8 percentage points to 51.4 per cent in Q2. This means that only slightly more than two in five of payment transactions within the sector were prompt.

Kurt Wee, president of the Association of Small and Medium Enterprises (ASME), said: "We're not seeing construction SMEs that are ready to fold. It's not gotten to that level, but it is not looking pretty at all."

He attributed the sector's slow payments to the manpower shortage it faces, which sometimes makes it difficult to complete projects on time. As contractors receive progressive payments for a certain percentage of a project completed, missing a deadline could mean subsequent cash flow problems and cost overruns.

Another factor is the rising labour and operating costs, and the inability of builders here to restructure quickly enough to overcome them.

Productivity gains from process revamps take a longer time to materialise in the construction sector because of the time lag between project design and project completion.

Mr Wee said: "We need to move the developers a lot more into precision precast technology," he said, referring to the practice of manufacturing modules off site, and then transporting them to the site for assembly.

Roland Ng, the managing director of crane operator Tat Hong Holdings, cited depressed tender prices - sometimes from foreign main contractors unfamiliar with Singapore's labour constraints - as a cause of payment delays. This has put a squeeze on the margins of the local firms to whom they sub-contract the project.

Construction woes have been making headlines since last year. For example, when Poh Lian Construction was placed under judicial management, its subcontractor Capstone Construction abruptly halted work on two HDB build-to-order projects in Bukit Panjang and the upgrading of St Anthony's Canossian Secondary School.

At his National Day Rally last Sunday, Prime Minister Lee Hsien Loong disclosed that Ng Teng Fong General Hospital in Jurong, which was to open in December, will now open in the middle of next year instead. The project's main contractor, GS Engineering & Construction has put the blame partly on a shortage of skilled construction workers in Singapore.

Singapore Contractors Association president Ho Nyok Yong suggested, however, that the two quarters of slow payments in the construction sector could be cyclical: "Every second quarter, payment delays seem to be on the uptrend. It could be that they pay more promptly during the new year and lag after that. Anyway, it's only two quarters - hardly a trend. I won't say it's worrying."

The services sector recorded a sharp increase in payment delays - up 3.8 percentage points to 43.9 per cent in Q2.

SCCB said health services, hotels & accommodation services and business services, accounted for the biggest increases in payment delays; the education and financial services industries had fewer delays.

The wholesale sector was the best paymaster, but even it reported more delayed payments on the back of a moderation in non-oil re-exports growth. Delayed bill payments also rose in the retail sector amid slower sales and a drop in tourist arrivals.