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Construction sector hardest hit by payment delays

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The construction sector continues to be hard-hit by a double whammy of sluggish demand and delayed payments, which is worsening the cashflow situation of the smaller players - and little relief is in sight.

Singapore

THE construction sector continues to be hard-hit by a double whammy of sluggish demand and delayed payments, which is worsening the cashflow situation of the smaller players - and little relief is in sight.

Construction is the only sector that registered a year-on-year rise in number of slow payments, which stood at 53.3 per cent in Q3 2017, up from 50.82 per cent in Q3 2016, said the Singapore Commercial Credit Bureau (SCCB).

Quarter on quarter, the percentage of slow payments in the construction sector rose 8.14 percentage points between Q2 and Q3.

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Payments are considered slow if under half of total bills are paid within the agreed terms.

Q3 was the seventh consecutive quarter (since Q1 2016) that the construction sector has notched up the highest proportion of payment delays.

The heavy construction sub-sector accounted for the steepest increase in slow payments, up by 11.25 percentage points to 57.21 per cent in Q3 2017. Small and medium enterprises (SMEs) in the construction sector told The Business Times that they have noticed this trend of late payments since last year.

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Ginlee Construction, for example, has experienced some instances of slow payments since 2016.

Tommy Lim, the managing director of the company that does controlled demolitions, said: "For us, it's not too bad because we are a specialist, so people still need us. We are quite lucky, as we work with main contractors, who are our regulars. But for those who are general contractors, they are affected quite a lot."

He noted that in the past, a project would typically attract tenders from 10 companies; these days, up to 30 companies would vie for a single project.

"It is like a cake with a lot of ants surrounding it. A lot of people are hungry. And if these people are hungry, they will take the jobs at a lower price."

Companies which accept such low prices would usually try to drag their payments to their subcontractors, he added.

Patrick Koh, managing director of QXY Resources, said of this spillover effect rippling through the construction sector: "Right now, there is over supply in contractors and a lower number of jobs. That's why tender prices are down… The market is very bad. Every time we tender, the prices are so low that I can't believe it."

Despite the situation, he expressed optimism about the future, an outlook which he said is unlikely to be shared by his peers.

To differentiate itself, QXY Resources is finding ways to venture into more innovative projects that require specialised expertise, such as prefabricated buildings.

Mr Kenneth Loo, president of the Singapore Construction Association Limited, said that although sentiment is still weak in the near future, there may be some bright spots on the horizon.

On Monday, flash estimates of private home prices showed an uptick after 15 quarters of decline; and the government had announced last week that it is bringing forward another S$700 million in public-sector projects over the next two years to give the beleaguered sector a boost.

Mr Loo said: "What's important to me is the injection of positive energy into the sector. At least the market can foresee jobs coming in by 2018-2019. " For the time being, he said, firms ought to exercise prudence in managing their cashflow. "If you underbid at a rate you cannot sustain, you won't be able to keep the business going. You need to be mindful of having continuity," he said.

Construction may be languishing the most among the sectors, but payment performance of local firms on the whole was a mixed bag.

Year-on-year, slow payments improved moderately, falling by 5.62 percentage points to 40.75 in Q3 2017. Prompt payments - defined as a situation in which 90 per cent or more of total bills are paid within agreed terms - climbed by 5.25 percentage points to 47.43 per cent from a year ago.

On a quarter-on-quarter basis, however, slow payments rose by 2.28 percentage points in Q3 from Q2. Prompt payments fell by 2.88 percentage points.

The manufacturing sector registered the second highest proportion of payment delays. This was attributed mainly to dampened activities within the transportation equipment sub-sector and marine and offshore engineering segment. Compared to the year before, slow payments fell by 4.64 percentage points to 42.49 per cent.

On the other end of the spectrum, retail firms recorded the lowest proportion of payment delays due to an uptick in spending on discretionary items. On a year-on-year basis, slow payments dived 15.39 percentage points to 33.96 per cent.

Audrey Chia, chief executive of D&B Singapore, commented that ensuring good cashflow boiled down to "exercising good credit vigilance and proper negotiation".

"Good cashflow forecasting would also enable firms to determine and better decide on whether they should make capital investments in advance, as this will ultimately affect the ability of firms to pay their creditors."