Slow payments worsen for manufacturing sector in Q2

Singapore

THE manufacturing sector had the worst slow payments deterioration in the second quarter, suggesting that the manufacturing recession is starting to hurt local firms' cash flow and profitability, economists said.

The new findings come from a Singapore Commercial Credit Bureau (SCCB) report released on Tuesday. Among the five sectors, the manufacturing sector saw the largest increase in slow payments quarter-on-quarter (q-o-q), inching up 1.43 percentage points to 38.08 per cent, from 36.65 per cent in Q1. Year-on-year (y-o-y), slow payments dipped by 0.92 percentage point to 38.08 per cent from 39 per cent.

The manufacturing sector saw an increase in slow payments from payment delays by manufacturers of printing and publishing, leather products and tobacco products. On top of experiencing a "patchy" period, it is also undergoing transformation and being interrupted by technology, CIMB Private Banking economist Song Seng Wun said.

As the US-China trade war is dampening trade and capex spending, Maybank economist Chua Hak Bin said companies will have to manage and preserve their cash flow given the uncertain and volatile backdrop.

The retail sector saw slow payments improve the most among sectors on a q-o-q basis, down 1.54 percentage points to 36.19 per cent, from 37.73 per cent. Slow payments fell for the third consecutive quarter from a better showing by retailers of general merchandise, food and beverage, building materials and garden supplies.

However, y-o-y, the retail sector had the largest percentage increase in slow payments, up 6.35 percentage points to 36.19 per cent from 29.84 per cent.

On the other end, the wholesale industry's figure dipped 1.72 percentage points y-o-y to 35.22 per cent. Q-o-q, payment delays edged up 0.97 percentage point to 35.22 per cent. Slow payments from wholesalers of durable goods were observed.

The construction sector improved slightly in the second quarter due to a decrease in payment delays primarily in building construction. Slow payments dipped 0.82 percentage point to 46.9 per cent, from 47.72 per cent the previous quarter. Y-o-y, slow payments fell 0.43 percentage point.

In the services sector, slow payments rose for the first time after four straight quarters of decline, largely from an increase in payment delays within the hotels and accommodation, education and social services sub-sectors. Q-o-q, slow payments inched up 1.28 percentage points to 35.77 per cent, from 34.49 per cent in the first quarter. But y-o-y, slow payments improved by 1.77 percentage points to 35.77 per cent.

Overall, SCCB's report observed local firms' payment performance worsening for the second quarter following a rebound in the previous quarter.

Prompt payments accounted for less than half of total payment transactions, while slow payments accounted for more than a third of total payment transactions.

Prompt payment refers to when 90 per cent or more of total bills are paid within agreed payment terms, while slow payment is defined as when less than 50 per cent of total bills are paid within the agreed terms.

In the second quarter of this year, prompt payments fell 2.26 percentage points to 49.44 per cent, from 51.7 per cent the previous quarter. Y-o-y, prompt payments fell 0.11 percentage points to 49.44 per cent.

Slow payments, meanwhile, edged up by 0.51 percentage point to 37.1 per cent, from 36.59 per cent the previous quarter. Y-o-y, slow payments fell by 0.08 percentage point to 37.10 per cent, from 37.18 per cent.

Partial payments also rose by 1.74 percentage points to 13.45 per cent in the second quarter, from 11.71 per cent the previous quarter. Y-o-y, they were up 0.18 percentage point to 13.45 per cent from 13.27 per cent.

Partial payment occurs when between 50 and 90 per cent of total bills are paid within the agreed payment terms.

The SCCB operates a database of local enterprises and their credit history for insights. It operates under D&B Singapore, which compiles the study figures by monitoring over 1.6 million payment transactions of firms operating through SCCB.