Irish SMEs get paid faster as Covid hardship eases

Ireland’s “debt days” fell to 47.1 days in the first three months of the year from a peak of 64.1 days in the second quarter of 2020, when thousands of businesses were shuttered in the early months of the Covid-19 crisis.

The number is slightly above the 45 days recorded in the last quarter of 2021, but is essentially flat compared to last year, suggesting that payment stress became less of a factor in the second year of the pandemic.

The data is collected by the IAIFA, whose members make loans to companies based on the cash flows of their debtors.

IAIFA Chairman David Avery, who is also head of commercial finance at AIB, noted the “slight increase” in the time companies wait for payments, but said other indicators were positive.

“However, what we have witnessed is a dramatic increase in revenue allocated to our members’ invoice financing facilities, which totaled €8,124 million in Q1 2022 compared to €6,523 million in Q1 2021,” he said.

“This primarily reflects a strong post-Covid recovery, but will also include an element of increased commodity prices and an inflationary environment.”

From surging tax revenues to robust employment figures and wage growth, numerous indicators show that Irish business activity is recovering quickly this year.

But analysts have warned that SMEs could now face latent financial distress as they transition into a post-Covid economy disrupted by inflation, an energy crisis and rising financing costs.

Almost half of businesses there say it is taking longer for customers to pay than before the pandemic, with manufacturing and services hardest hit, according to a survey by discount billing firm Bibby Financial Services in the UK this month.

More than a quarter of those surveyed – 28 percent – said they had suffered financially because of bad debts, up from 20 percent in 2021.

UK pandemic support was withdrawn in September, leading to an increase in financial distress for companies, reflected in higher insolvency rates in late 2021 and the first quarter of this year.

Ireland’s Covid wage subsidy scheme was shut down for most businesses last month, although Revenue’s tax debt warehouse administration is still available.

Last month, the central bank said non-viable businesses kept afloat by government pandemic support would face failure as subsidies were withdrawn and inflation pushed up input costs while depressing consumer demand.

In February, Close Brothers, another invoice financier, reported that late payments were becoming a growing problem for businesses, with a quarter of Irish SMEs struggling with late payments of more than €40,000.