Blog

By Mark O'Rourke, Managing Director, Ireland

08 Feb 2022

Irish SMEs will have rejoiced at the latest easing of restrictions and can now look to 2022 and beyond with renewed hope. Where once uncertainty lingered over every decision, there is, for the first time since March 2020, a real sense of optimism and the opportunity, finally, for recovery and potential growth.

That said, there is no doubt that the pandemic has left its mark on the business environment and this has resulted in some unexpected challenges that will have to be closely monitored.

Currently, the main items to keep an eagle eye on are rising inflation rates, ongoing supply-chain disruption and the forthcoming end of Government supports. Our customers are reporting some or all of these issues and say they need reliable and sustained support to help them navigate this tricky landscape while also working towards fulfilling their delayed, and justified, growth ambitions.

On this basis, we have identified three key areas that SMEs will need to focus on in 2022 as they engage in a rapid recovery and subsequent growth path.

Firstly, SME’s need to realise that there is a wide range of funding options open to them. The traditional banking landscape has changed dramatically over the past few years and while Irish banks were once the mainstays of finance providers for Irish businesses, there is now a significant range of alternative financial institutions who offer a range of reliable solutions.

Instead of operating as silos, there’s an increasing need for more collaboration across traditional banks, independent financial providers and fintechs to ensure we are learning from each other and in a position to offer businesses a wider spectrum of funding options.

Having greater awareness of and access to the entire spectrum of funding options would enable SMEs to address any short and long term challenges.

One example of this collaboration is our partnership with Permanent TSB. Since last year, we have offered Permanent TSB customers an enhanced range of funding solutions designed to improve cash flow and fund their growth ambitions. This relationship between one of Ireland’s leading retail and SME banks and a specialist lender is one of the first of its kind in Ireland and offers businesses a significant opportunity to explore their funding options.

The strategic partnership involves Bibby Financial Services Ireland offering Invoice Finance services to Permanent TSB customers. Invoice Finance offers businesses access to cashflow outstanding from their unpaid invoices, helping them to access income they have already earned but not yet received. This offers businesses the option of using their own funds to improve day to day or seasonal cashflow fluctuations or finance bigger growth plans.

Most Irish business owners also prefer the personal touch when it comes to their financial transactions, and, put simply, they are not always getting this currently from the traditional banking landscape. Ultimately customers want easily accessible personal engagement combined with proficient technological platforms that work for them. Customer centricity needs to be the focus.

Now is not the time to greet businesses with a computer or a bot. Instead they need to be in a position to talk to someone who can balance local knowledge with strong financial acumen and easily accessible technology.

Secondly, with inflation increasing the cost of raw materials and supply chain disruption taking a serious toll, business owners will need to have a laser focus on working capital requirements this year. Net working capital days reached a record high over the past year due to the uncertainty provided by the pandemic and the latest PWC Business Survey has revealed that 65% of executives named working capital efficiency as a critical objective for change management and restructuring activities.

Our own most recent survey shows that almost a quarter of SMEs (22%) say they now need cashflow support more than ever before. In addition, the report also states that almost four out of ten (38%) SME’s say they will require additional funding into 2022 as they look beyond the pandemic and return to growth.

Such funding will be vital in ensure businesses can deal with inflation, overcome supply chain disruptions, ramp up recruitment to fulfil demand, and invest. To facilitate this, SME’s should also consider solutions from the private sector that protect against bad debt and offer ongoing access to working capital as it will provide then with certainty of payment and sustainable sources of liquidity.

Lastly, SMEs will have to address the increasing issue of late payments which are having a knock-on impact on cash flow. PWC reported that the ‘Days Sales Outstanding’ in Ireland increased 7% to 54.1 days over the past year as customers delayed payments. In addition, our own survey shows that since the beginning of the pandemic, Irish SMEs have reported losing an average of €28,164 each due to a bad debt. Though many of the factors that have led to late payment problems may be out of the hands of Irish SME owners, they do remain in control over how they find solutions to them.

This is where alternative finance solutions can and should be playing a greater role with cashflow, where traditional banking has been unable to help.

Alternative finance options, such as invoice finance, will be a vital part of a more sustainable recovery. This facility essentially offers businesses access to money outstanding from their unpaid invoices, helping them to access income they have already earned but not yet received. This offers businesses the option of using their own funds to improve day to day or seasonal cashflow fluctuations or finance bigger growth plans without having to borrow any money.

Unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that once your invoices are paid, you can just continue the cycle – upload your invoices, draw down, use the funds and simply repeat. In addition to assisting with cashflow, it’s worth noting that Invoice Finance can also be utilised to fund a range of other growth scenarios such as investing in infrastructure or equipment, funding Research and Development, financing an expansion, Mergers & Acquisition activity or simply stabilising a business during turnaround.

With the new paradigm of collaboration between financial institutions on the horizon and a wide spectrum of alternative financial tools to tackle issues stemming from the pandemic, Irish SMEs should enter 2022 with renewed resolve to hold strong and plan for growth. By taking steps to protect and enhance their business today, SME owners can give themselves the necessary shot in the arm to ensure that their best days still lie ahead.


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