Construction firms hard hit by rapidly rising payment delays, but falls in profitability slowing

Cash flow dropped by a record amount during the first quarter of the year, according to new figures from credit insurance firm Euler Hermes. It was 7.5% down year-on-year.

The difficult macroeconomic environment, which has led to a sharp downturn in revenues amid tight credit conditions and an uncertain outlook, remained a key factor depressing cash flow, the firm said.

It added that rising payment delays appeared to be negatively affecting UK construction companies' cash flow during Q1. Payment delays from domestic clients rose at a near survey record pace, according to the latest data.

Deteriorating cash flow also hit construction companies' suppliers. Delays in payments to vendors rose at an unprecedented rate, according to Euler Hermes.

Delays in payments to materials suppliers rose at an unprecedented rate in Q1

Meanwhile, the company found that profitability of firms deteriorated for the seventh successive quarter during the first quarter of 2009, as domestic demand remained weak and raw materials prices continued to rise.

A gleam of light came from the fact that profitability had deteriorated only modestly, with a smaller fall than in recent quarters. Reduced labour costs and low interest rates had helped supported profitability, the firm said.