A recent report from the Central Bank indicated that there has been no significant increase in insolvencies due to the Covid-19 pandemic. That is not to say that businesses around the country haven’t suffered extreme financial hardship, but, as the report suggests, Government supports, repayment breaks on loans and flexibility from creditors has ensured a low insolvency rate up to now.
Unfortunately, there are a number of storm clouds gathering on the horizon to indicate this may not be the case for long. While many SMEs are understandably focused on the short-term, in particular in the run-up to Christmas, it is also more important than ever that they take a longer view of their finances – and consider the possibility of restructuring their corporate finances as and when required.
Government supports cannot last forever, and, once they do come to an end, there is a strong possibility that Irish SMEs will be severely hit. While many have managed to avail of funding to keep staff on the books and the business up and running, it is likely that many will face significant shortfalls in 2021, with many facing the threat of closure.
Second, and as discussed previously, Irish SMEs have yet to feel the full impact of Brexit. With talks on a trade deal ongoing, SMEs are optimistic that an agreement will be reached. If it is not, however, much of the disruption that was avoided through the introduction of the ‘transition period’ will quickly be brought to bear on Irish businesses. Almost two-thirds of Irish SMEs (63%) believe failure to reach an agreement will negatively impact their business, and, if no trade deal is agreed, the impact on supply chains will have extensive knock-on effects throughout the Irish economy – even for those businesses that don’t directly import from or export to the UK.
In addition to the effects of Covid-19 and Brexit, Irish SMEs may also have to contend with legacy issues from the financial crash. In the wake of the crash, much of the refinancing done by banks saw vulture funds purchase stressed debt that was refinanced at high interest rates. This was always going to be a short-term measure, and now many of those same funds are looking to offload and recycle those debts into the market. This process is likely to play-out over the next year or two at least, but this will be another key driver leading more businesses to look at restructuring their corporate finances.
For Irish businesses that face these challenges, invoice finance can be a powerful tool to help them refinance and restructure their business. A fast and effective form of funding, invoice finance gives businesses access to up to 95% of invoices as soon as they are raised. Once the invoice is paid, the business then receives the balance minus an agreed fee with their invoice finance provider. As a result, business owners can get on with leading their business and not have to worry about having sufficient working capital each day. Furthermore, smart use of invoice finance can lower the quantum of term debt a business needs to take-on, in turn reducing the burden of monthly loan repayments as well.
Equally, while many businesses will be doing their best to survive the current economic turmoil, the more ambitious ones will be eyeing up opportunities in the New Year. These may take the form of mergers, succession plans, acquisitions of struggling competitors or simply putting in place better debt arrangements. In any case, the flexibility of invoice finance means it will remain an important string in the bow of any businesses looking to prosper in 2021.