Ireland’s SMEs are confident despite economic uncertainty but a range of financing options will be critical to sustaining their cashflow and working capital, writes Mark O’Rourke
Despite considerable uncertainty around the global economic environment, Irish businesses remain positive and pragmatic when it comes to making 2023 a success. Sector-by-sector, however, this looks and feels very different.
Businesses will be relieved when inflation starts to reduce, but those working in the hospitality sector still face challenges that are squeezing their cashflows, such as the recent return of VAT levels to 13.5 percent.
Rising insolvencies continue to be a real and concerning threat to businesses. The latest statistics published by Deloitte Ireland show that a total of 329 corporate insolvencies were recorded in Ireland in the first half of 2023, with 186 recorded in the second quarter. This represents the highest quarterly level since the first quarter of 2019 when 195 insolvencies were recorded.
New research from Bibby Financial Services echoes these wider economic indicators. Our 2023 Global Business Monitor shows that, overall, Ireland’s outlook remains positive for 2023 and beyond, with inflation expected to fall, despite high prices and rising interest rates continuing to drag on growth.
Irish businesses relatively confident
At 90 percent on a measure of confidence, Irish SMEs are – alongside Germany – the most bullish of nine countries surveyed about their business prospects in our 2023 Global Business Monitor.
This confidence doesn’t, however, extend to the global economic environment, with half of Irish SMEs (51%) believing that global economic conditions are worse now than during the pandemic.
Growth feels achievable to Irish SMEs, with 72 percent saying they expect sales to increase in the next six months.
The key opportunities they have identified for the year ahead include:
- attracting new customers (67%);
- building new supplier relationships (36%)
- taking on new staff (24%);
- renegotiating with existing suppliers (23%); and
- exploring new distribution channels (21%).
Not surprisingly rising costs and inflation were cited as the top concerns for Irish SMEs at 64 percent, followed by energy costs (62%), supply chain pressure (30%), interest rates and the cost of borrowing (27%), and the conflict in Europe (24%).
As a result, Irish businesses are taking measures to navigate cost increases and inflation, with 57 percent increasing prices to customers, 38 percent reviewing their supply chains for efficiencies, and 14 percent freezing recruitment plans.
Furthermore, a reduction in suppliers is also putting a strain on costs for Irish SMEs, for whom 34 percent of their suppliers have entered administration in the past 12 months.
88% of SMEs plan to invest
Eighty-eight percent of resilient Irish businesses say they intend to invest an average of €108,850 this year, however.
Areas they are looking at investing in include marketing and sales (37%), staff training and development (34%), and new staff recruitment (23%).
These top three investment areas show that Irish businesses are prioritising the quality and retention of their employees, investing in hiring the best and upskilling those already employed in their business.
Although there is a number of challenges and concerns facing businesses today, Irish SMEs are resilient because they care about their employees, their customers and supply chains.
While 14 percent of businesses are intending to freeze recruitment as a way of coping with cost increases, more than half (57%) intend to invest in their staff this year. This demonstrated that Irish businesses acknowledge the role their employees play in their growth, and vice versa.
Overcoming the cashflow challenge
SME investment plans may be hindered by cashflow and bad debt issues, however, as three in 10 businesses have had to write off bad debts in the past 12 months.
The average figure here was €21,076, up from €18,543 in 12 months, and jumps significantly for the wholesale sector, which has recorded the highest average amount written off at €47,000.
Fifty-seven percent of Irish SMEs have also reported that it is taking longer for customers to pay them, up 14 percent on this time last year.
It is no surprise then that cashflow is an issue for companies, with more than one-fifth of Irish SMEs saying they don’t have the cashflow they need to grow and close to half saying they are more likely to use external finance since COVID-19.
Unfortunately, many business owners are often unaware of the broad range of funding options available to them as they wait for customers to settle outstanding amounts.
Alternative finance options
The traditional banking landscape has changed dramatically in recent years and, while Irish banks were once the main providers of finance for Irish businesses, there is now a good range of alternative financial institutions offering reliable solutions.
Financing and investment are critical to the success of Irish SMEs and the withdrawal of Ulster Bank and KBC from the Irish banking market in the past six months has had a knock-on impact, unlocking opportunities for other financial service providers to attract new customers and allowing SMEs to more fully properly consider the financial options available to them to set themselves up for success.
What is very clear across all markets is that SMEs need all the support they can get from both the private and public sectors.
Such funding is vital in ensuring businesses can deal with the range of issues facing them such as inflation and supply chain disruptions as well as offering them the opportunity to invest and grow.
Alternative finance options, such as invoice finance, are now playing a more important role in a sustainable funding landscape.
The benefits of Invoice Finance
At Bibby Financial Services Ireland, exclusive partnerships with key partners ensure that SME financing is as accessible, flexible and affordable as possible.
This includes a long-term relationship with Strategic Banking Corporation of Ireland, a state-backed agency, offering discounted Invoice Finance to qualifying Irish businesses. Over €70 million has been made available in funding to Irish SMEs through this partnership.
In addition, a strategic alliance between Bibby Financial Services Ireland and Permanent TSB means the bank’s SME customers can avail of Invoice Finance services and an enhanced range of funding solutions designed to improve cashflow and fund 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 is already transforming the Irish financial landscape.
As alternative funding solutions provide certainty of payment and more sustainable sources of liquidity, they are often far more suited to the needs of an SME than traditional lending options.
They also don’t involve borrowing any money – often a key factor for SMEs as they simply don’t want to take on term debt or cash flow loans that will result in monthly repayments for years to come.
This hesitancy to take on debt is creating what we are calling “an investment gap” at SME level in Ireland. It is resulting in a barrier to growth for Irish SMEs and what many companies don’t realise is that alternative funding solutions can help SMEs to overcome this barrier.
Unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that, once customer invoices are paid, you can continue the cycle – upload new invoices, draw down, use the funds and simply repeat.
The benefit is that you can access multiples of the funding required, compared to a fixed line of credit.
This funding option is suitable for a variety of sectors and a wide range of funding scenarios including cashflow funding, new equipment purchase, growth and expansion, management buy-ins and buy-outs, refinancing, corporate restructuring and mergers and acquisitions.
So, while the Irish Government and other governments around the world continue to formulate economic plans to tackle a range of era-defining issues, SMEs remain confidently poised and ready to take on the challenges facing them.
The fact that so many are positive about their own prospects in the face of these challenges is testament to the ingenuity and determination of SME owners at home and across the world.
Yes, there is no one-size-fits-all solution to navigating the uncertain outlook ahead, but by ensuring they have access to a range of financing options that provide sustainable working capital and cashflow, they will be able to overcome any challenges and take advantage of any opportunities that arise over the remainder of 2023.
Mark O’Rourke is Managing Director of Bibby Financial Services Ireland. For more information, log on to bibbyfinancialservices.ie, find us on LinkedIn or follow us on Twitter @BibbyFinanceIE
LOADING...