Brexit deadline The 31 October Brexit deadline is fast approaching and clarity on the issue is as far away as ever. At the time of writing, many options seem possible, including a Brexit delay and a UK general election, but perhaps the most likely prospect is a no-deal or limited-deal Brexit. Both the Irish and British governments have urged businesses to prepare for Brexit, particularly those that import, export or transport goods, animals or animal products. It seems that the UK government is operating on the assumption that a hard border will return to the island of Ireland, as revealed in a UK no-deal contingency document codenamed ‘Operation Yellowhammer’, which was eventually published in mid-September after leaks to the press. The document warns of potential unrest in Northern Ireland along with road blockades, job losses and disruption to the agri-food sector, as well as an increase in smuggling and the potential for disruption to electricity supply. We must hope that this is a dire overestimation of a worst-case scenario. Meanwhile, in Dublin, Institute President Conall O’Halloran recently met with Minister for Finance, Public Expenditure and Reform, Paschal Donohoe TD, to discuss the post-Brexit scenario as well as the Institute’s 2020 Budget submission and other business issues. Brexit support Our Institute will do everything it can to support members and member firms at a time of great uncertainty. You can read our latest updates on www.charteredaccountants.ie, particularly in our Brexit Web Centre and our page dedicated to no-deal Brexit planning. We are encouraging businesses across Ireland and the UK to ensure that they can continue to trade with each other post-Brexit. Applying for a customs registration (an EORI number) is just the first step in the process. Getting an EORI number takes between three and five minutes and can be completed online. While some traders have experience in the customs formalities required to import and export outside of the EU, it will be a first for many – particularly smaller enterprises. Businesses need to upskill in the area of customs using Government supports. They should also assess whether they have gaps in customs knowledge. Revenue estimates that customs declarations are expected to increase from 1.4 million to 20 million per year post-Brexit. HMRC estimates that declarations will grow five-fold to around 250 million. It’s best to be as prepared as possible. New academic year As we move into October, our Institute is about to welcome a new crop of students following a campaign to recruit the brightest and best to the profession. A new programme of specialist qualifications covering areas as diverse as corporate finance and cybersecurity are also getting underway. A central part of our strategy is to train the very best business professionals so that they can make a significant contribution to the economy on the island of Ireland, and further afield. We’re working hard to ensure that whatever the economic climate, we’re providing high-quality Chartered Accountants who will make a valuable contribution to firms and businesses. On behalf of my colleagues in the Institute, I’d like to offer our best wishes to all of our new students as they start out on their Chartered journey. Barry Dempsey Chief Executive

Charities in Northern Ireland may have to provide more detail to the Charities Commission in the near future, but any initiative that restores the public’s trust is to be welcomed. By Angela Craigan On 27 August 2019, the Charity Commission for Northern Ireland opened a public consultation in respect of new questions charities must answer in their annual returns plus additional information that organisations applying for charitable registration online must answer. The proposed questions cover topics such as safeguarding, data protection, loans and payments to related parties, and the use of commercial fundraising partners. The Charity Commission NI advises that the questions are designed to help it gather important information on individual charities and the charity sector as a whole. The format of the proposed new questions requires each charity to reveal if any trustee owes money to it, whether any of the charity’s assets are leased from a trustee, and whether a trustee has been paid for carrying out their role. These questions are already asked in the annual monitoring return, but will now be asked when applying for registration. The Charity Commission NI also intends to ask charities if they have reported a data breach to the Information Commissioners Office in the past year. It will also collect information on what percentage of charitable expenditure relates to charitable purposes for organisations of less than £250,000 a year. All of the new and revised questions Charity Commission NI propose to include in the registration application and the Annual Return Regulations 2019 are available to view in the consultation document. The public consultation will focus on the most significant questions, and will allow an opportunity to voice opinions on the proposed changes. The consultation process will run for eight weeks, closing on Tuesday 22 October 2019. The changes will be of particular interest to members working in the charity sector and those who are trustees of Northern Ireland charities. The consultation has arisen as a result of increased risks within the charity sector including safeguarding, cybercrime and fraud. These increased risks have had a negative impact on the public’s perception of the charity sector. A key role of the charity commission is to increase public trust and confidence in charities. The commission is of the opinion that the additional questions will increase transparency and, as a result, public confidence in charities. The recent safeguarding failures in some high-profile charities have highlighted the importance of trustees being aware of their responsibilities and the safeguarding standards expected of them. The commission has added questions in relation to the ‘expression of intent’ form that is completed by those waiting to be called forward for registration. The commission also proposes to add more questions to the classification section of the charity registration form. In this section, applicants describe their charitable purpose, the focus of the charity and the beneficiaries of the organisation. It is important that trustees understand their responsibilities in respect of the information filed with the Charity Commission. Trustees may delegate the task of submitting an application or annual monitoring form, but they cannot delegate the responsibility of making sure they are accurate and submitted on time. If an annual monitoring form is late, the register of charities shows them as being in default. Once submitted, the register will read “Due documents received late”. This is of increased importance as funders are now using the register to check if forms are being returned late and will look less favourably on charities that file late when awarding grants. As an advisor to a large number of local charities, and as a trustee of Action Mental Health and New Life Counselling, I firmly believe that this sector is invaluable. I therefore welcome any move to increase public confidence in the charity sector.  Angela Craigan FCA is a Partner with Harbinson Mulholland, the accountancy and business advisory firm.

Claire Fitzpatrick FCA looks back on her career, from trainee auditor to the frontier of blockchain technology innovation. What’s wrong with me?” For someone who has enjoyed a varied and successful career in professional services and large corporations, it might come as a surprise to learn that Claire Fitzpatrick asked herself that very question in her 30s as she watched her peers move into senior roles. “You just need to get on the track,” she was told – a less than subtle reference to the perceived linear path to CFO/CEO roles. But as Claire readily admits, this isn’t how she operates. The Dublin native has made serendipitous career moves since leaving PwC in 2000 to work with one of her audit clients, Point Information Systems, but the draw has never been status or salary. Instead, her career has been guided by two things – people and culture. Venturing out While working as a PwC Audit Senior with Point Information Systems, Claire saw the culture she wanted to work in – ambitious, fast-changing and transformative. “I remember coming back after a year and the company had changed completely, whereas some other companies I audited would be the same year-on-year,” she said. “It was evolving at pace and the energy there just stood out for me.” Claire joined the company and her role expanded her knowledge base in a variety of new disciplines from engineering to sales and marketing. This diverse exposure would be of great benefit to her later in her career, not least when she returned from a working holiday with Nestlé in Australia and New Zealand to a role in O2. The company was in expansion mode at the time and Claire managed to experience the full life-cycle from early adoption to the sale of the business, which she was centrally involved in. From there, Claire moved to Wayra, Telefónica’s start-up accelerator, to accelerate digital embryonic businesses. As Claire recalls, it was a move that raised some eyebrows at the time. “A lot of my peers thought it was a step down for me in career terms, but I really wanted to get involved in the innovative digital space,” she said. “It reminded me of the energy and pace I felt in Point Information Systems and I had experience of both start-up and corporate environments, so I was able to bring a lot to the table.” Start-up life In her first three weeks in Wayra, Claire met with hundreds of entrepreneurs and developers across the tech ecosystem and this intensity continued unabated for three years. The hub was a success, investing €6 million in the Irish start-up ecosystem including 33 equity investments while returning the same amount. “For early-stage start-ups, that’s a great return,” she said. However, following the sale of O2 to Three in 2014, Telefónica ultimately closed its Wayra hub in Ireland and Claire decided to take on a new challenge.  The idea of starting her own business had never entered her mind, but the closure of Wayra meant that Claire and her two colleagues faced a fork in the road. “We saw real value in what we were doing at Wayra, and we were good at it,” she said. “So, we decided to set up Red Planet and to flip the accelerator model on its head. We started with the corporate to understand the problem it was trying to solve, and then sourced the best start-up talent to solve that particular problem.” The venture was successful and it achieved what Claire describes as “the holy grail” for start-ups – being sold to a large corporate. Red Planet was acquired by Deloitte in 2017 and Claire continued to work with the firm for 18 months. “Selling our start-up was a tough decision, but the right one. Deloitte was really good at the strategy piece and identifying the challenges facing their clients, while Red Planet was able to find the solutions in the start-up world and develop them to scale. We were very good at curating diamonds in the rough.” Blockchain calling At this stage in her career, Claire faced an inflection point. Not content to simply go with the flow, she began plotting her next move when an opportunity arose to join a new blockchain venture headed by the co-founder of Ethereum, Joseph Lubin. The company was founded in 2014 and was at the forefront of Ethereum blockchain technology innovation. It needed someone to establish its base in Dublin and build its team, and the company ultimately chose Claire as its Director of Strategic Operations. The Dublin hub, which is known as ConsenSys Ireland, is developing the products that will enable society and enterprises to advance to the next level of blockchain adoption. Claire is very excited about the bigger picture. “In the future, you won’t even know you’re interacting with blockchain. It will be just like the Internet where nobody really thinks about or considers the infrastructure or protocols – they just see the applications,” she said. “Blockchain will be as transformational as mobile telecommunications was 25 years ago. We are part of a new industry, a new technology, new products, and a market which we have to create and educate. That’s a big challenge, but a very exciting one.” Leadership style But amid the excitement and potential lies ambiguity, and it takes a certain type of person to thrive in an ambiguous environment according to Claire. “Given the nascent nature of blockchain technology, we’re continually refining our vision and new industries are constantly wanting to explore new directions with the technology. So, although everyone in the company has goals to achieve, some are set in stone and some evolve to meet the needs of our clients,” she said. “That’s no different to a traditional organisation but we do differ in that we could have to tell staff to drop projects and pivot in a new direction at a moment’s notice – and some people find that challenging.” Luckily for Claire, working in a maturing industry adds to the allure of her new role in ConSensys – one she believes will contribute to a decentralised, democratised future for individuals. “It’s a rollercoaster, but with experience and age comes perspective and balance,” she said. “And the most important thing for me, throughout my career, has been the people I work with. My colleagues today are not necessarily wired like me but we work well together in the good times, and the challenging times, to make something great happen. That’s what it’s all about.”   Claire’s advice for Chartered Accountants Chartered Accountants will have a central role in the deployment of blockchain technologies and rather than wait for mass adoption, Claire believes the time to upskill is now. “The conversation around blockchain has moved from proof of concept to pilot schemes so when we’re talking to clients, we’re discussing real systems as opposed to hypothetical ideas,” she said. “So, I wouldn’t recommend waiting to start blockchain projects because we will reach the point of mass proliferation quicker than most people expect.” “The first step for all Chartered Accountants is education. There are free educational resources through ConsenSys Academy and Blockchain Ireland is working to raise awareness of what’s coming down the tracks,” Claire added. “But it’s vital that Chartered Accountants realise that anyone can quickly become a laggard in this dynamic environment.” “Finally, I would stress the point that Chartered Accountants don’t need to worry about losing their heads in the weeds trying to understand the programming and coding side of things,” she said. “They should educate themselves with regard to the characteristics and applications that they can see for blockchain in their business.”

Could joint audit help improve audit quality and reduce market concentration? By Tommy Doherty Joint audit is a proven means of facilitating the emergence of a diverse audit sector and, in the case of France, has already led to the creation of the least concentrated audit market of any major economy. If undertaken in a spirit of collaboration, it can reinforce governance arrangements on the conduct of audits and deliver real improvements in audit quality. What is a joint audit? In a joint audit, two separate audit firms are appointed by a company to express a joint opinion on its financial statements. It is fundamentally different from a ‘dual’ or ‘shared’ audit, whereby one audit firm (or sometimes more) audit parts of a group and reports to another audit firm, which ultimately signs off on the group audit. Statutory joint auditors must belong to separate audit firms. Joint audits usually involve two audit firms, but a small number of companies have decided voluntarily to appoint three audit firms to perform their joint audit. Joint audit, audit tendering and rotation The 2014 EU Audit Regulation introduced incentives to encourage the adoption of joint audit by allowing joint auditors to benefit from a longer rotation period (i.e. a maximum tenure of 24 years with no tendering required). By contrast, sole audits are subject to tendering after 10 years and a maximum tenure of 20 years. The preamble to the Audit Regulation states that: “The appointment of more than one statutory auditor or audit firm by public interest entities would reinforce the professional scepticism and help to increase audit quality. Also, this measure, combined with the presence of smaller audit firms in the audit market, would facilitate the development of the capacity of such firms, thus broadening the choice of statutory auditors and audit firms for public interest entities. Therefore, the latter should be encouraged and incentivised to appoint more than one statutory auditor or audit firm to carry out the statutory audit.” Nine member states have decided to encourage joint audit through an extension of the maximum tenure allowed, including (in addition to France) Germany, Spain, Sweden, Finland, Norway, Belgium, Greece and Cyprus. Joint audit has long been regarded as a French peculiarity. But in the context of significant corporate failures and unsustainably high levels of market concentration, the UK’s competition regulator, the Competition and Markets Authority (CMA), is now recommending the introduction of mandatory joint audit. In April 2019, it published The Future of Audit report, recommending mandatory joint audit as part of a broader reform package for most FTSE 350 companies with at least one of the joint auditors being a non-Big Four auditor. The benefits of a joint audit From the company’s perspective, joint audit: Enables companies to benefit from the technical expertise of more than one firm; Encourages “coopetition” (cooperation and competition) between joint auditors, resulting in improved quality of service; Leads to a real debate on technical issues and offers additional scope for benchmarking; Allows for the smooth and sequenced rotation of audit firms, where appropriate; and Retains knowledge and under-standing of group operations, which minimises the disruption caused when one audit firm is changed. How joint audit works in practice The practice of joint audit is well-established in France, as it has been a legal requirement there for over 50 years and has gone through several phases of evolution to reach a level of maturity ‘signed off’ by the market. The following steps explain how the joint audit of consolidated financial statements works for the audit of large French listed groups like BNP Paribas, and how it could work in Ireland and deliver similar benefits. Joint audit of consolidated financial statements is the most common form of joint audit, and a professional French auditing standard exists (NEP-100). Step 1 Determine the annual audit approach: the yearly audit approach is jointly determined and includes the preparation of a joint risk-based audit plan. A single set of joint audit instructions (i.e. a manual of the audit procedures to be applied on a coordinated and homogeneous basis to the group’s subsidiaries by each joint audit firm or network) is issued. In practice, both joint audit firms contribute to these documents, which are consolidated before joint approval of the overall audit approach. The audit approach is almost invariably the subject of a combined annual presentation to the group’s audit committee by the joint auditors. Step 2 Overall allocation of work between the joint auditors: whatever the basis of appropriation, a balance between each of the joint audit firms is sought. This is provided for by NEP 100, which stipulates that the audit work required should be split between the joint auditors on a balanced basis and reflect criteria that may be quantitative or qualitative. If a quantitative basis is used, the split may be by reference to the estimated number of hours of work required to complete the audit. If a qualitative basis is adopted, the split may be by reference to the level of qualification and experience of the audit teams’ members. Step 3 Allocation of work on the different phases of the audit: for the accounts of consolidated subsidiaries, for joint and single audit, the parent company’s auditors are deployed as widely as possible over its subsidiaries worldwide. The allocation of subsidiaries to one or other of the joint auditors may be based on business, product or geographical location criteria. When geographical criteria are used (countries, zones, etc.), each joint auditor is deployed over one or several territories. In the case of significant groups, the joint audit approach is often applied within each of the group’s businesses to ensure oversight by ‘two sets of eyes’ for each business line. Step 4 Levels of group audit reporting: up to four levels of group audit reporting are distinguished: individual entities; geographical zones or business lines (aggregating several entities); group financial and general management; and those charged with governance. For individual entities, for example, the auditor in charge of each entity is responsible for reporting the audit conclusions by way of audit summary meetings with the local management and for expressing an audit opinion on the entity’s consolidation package. Step 5 The group audit opinion on a joint audit: the joint auditors prepare a joint audit report addressed to the group’s shareholders, which is presented during its annual general meeting. The audit opinion expressed is a single joint opinion. Special provisions exist in the event of disagreement between the joint audit firms as to the formulation of their audit opinion. In practice, they are rarely needed.  Step 6 Joint and several responsibilities: each joint auditor is jointly and severally responsible for the audit opinion provided. The exercise of joint and several obligations implies that each joint auditor performs a review of the work performed by the other. The sharing and harmonisation of the audit conclusions and the audit presentation prepared for the audited entity constitute the first step in that review. In addition, the audit summary memoranda and working paper files for the engagement are subject to reciprocal peer review. The two most common criticisms of joint audit relate to the cost and the additional risks involved. However, most of the tasks brought about by a joint audit situation are highly value adding as they are dedicated to the ‘professional scepticism’ necessary to express an audit opinion. In practice, the additional cost is borne by the audit firms involved rather than being passed on to the audited entity. The UK as a benchmark In 2020/21, the EU audit reform will be up for review. The UK reform will strongly influence the dynamic of this debate. Given the importance of its financial market, decisions in the UK will also have an impact beyond Europe. The Commonwealth countries look to the UK for best practice financial regulation and adopt rules that they consider beneficial for their markets. More countries are therefore likely to seriously consider joint audit as a measure to diversify their audit markets. Mazars believes that the UK will go ahead with the reform and that other countries will start to seriously consider joint audit for large corporates as part of a package of solutions to improve audit quality and reduce market concentration. Interestingly, on 28 May 2019, the prospect of Ireland preparing a similar report on The Future of Audit was raised at a Joint Committee on Finance, Public Expenditure and Reform. As an audit firm with a proven track record in joint audit, we believe that this is a solution than can provide tangible benefits to all stakeholders.   Tommy Doherty FCA is Head of Audit and Assurance at Mazars Ireland.

There is no active market for the sale and purchase of privately owned businesses. Any belief that there is a constant search by active purchasers is false. The reality is that many businesses – probably half, or more, of medium-sized companies – are likely not saleable. Erratic history, poor profitability, inadequate finances and uncertain prospects are the usual reasons cited for this circumstance. Realistically, the realisable value of a business to its owners may only be in its continuity. The surprise is that even profitable and well-run businesses are not necessarily saleable. Obviously, this is a disappointment for the owners and an enigma as to why this happens. After an initial flurry of interest in purchasing such a company, the closer assessment takes place. The cooler review by a potential purchaser is guided by the rule that there must be a worthwhile commercial reason to acquire a business, and not simply because it is for sale. Experience suggests that the principal reasons why one business acquires another are as follows: The acquired business is complementary to the acquiring business – for example, a light engineering business acquiring a metal fabrication business, or a transport company acquiring a warehouse business; The businesses share common characteristics that enable synergy and/or joint cost reductions as an added-value benefit to the purchaser; The acquisition protects and/or enhances an existing advantageous relationship between the two businesses; and The acquired business has knowledge, expertise, intellectual property or a location that provides added value to the acquiring business. It follows that the potential for the sale of a ‘standalone’ business (i.e. with none of the above reasons) is limited and only likely in the form of a management buyout. A further restricting factor, and this is true for acquisitions generally, is financing the purchase. Marketplace experience suggests banking caution on lending for acquisitions. There are many reasons why, not least that the underlying assets in the acquired company are not likely available as security due to company law and tax complications. The ‘asset’ being financed (i.e. the shares in the acquired company) is not tangible security, being no more than an expectation of future profitability. In any event, it takes time to sell a business. In an ideal world, the decision to sell would be made up to two years beforehand (although this will likely only be known to the owner). It isn’t that the best market conditions for a sale can be confidently predicted that far ahead; instead, there will be a readiness for sale that can be deferred if necessary, or brought forward if the pre-sale planning is in good order. As with most decisions, timing is important and good forward planning gives flexibility. This planning means not being your own advocate. An experienced corporate finance advisor is essential to a successful sale. Once a sale is contemplated, an informal discussion with an advisor will help you decide whether to sell or not and what will happen subsequently with regard to timing and process. Advance due diligence work means identifying and tidying up awkward circumstances that could derail a sale or adversely affect a sale price. The entire sale and purchase process, when commenced, will likely take between three to six months from start to finish.  It is the job of the corporate finance advisor to direct, coordinate and manage the process from start to finish. The advisor will operate in parallel with a legal advisor; and the same for the purchaser. The process, and the transaction itself, will generate an amount of legal and related documentation – all of which has to be identified, drafted, negotiated and completed. Third parties such as banks, landlords and regulators may also be involved and could, in turn, require documentation and cause delays. Properly done, the sale of a business is a backwards process known as ‘begin with the end’. In other words, the thrust at the outset is to identify prospective purchasers or sectors that likely fit one or more of the reasons for an acquisition, as set out above. Then, ensure that the information and sales approach is directed accordingly. Des Peelo FCA is the author of The Valuation of Businesses and Shares, published by Chartered Accountants Ireland and now in its second edition.

Claire Lord explains why it’s better to get your business’s record-keeping right in your own time and on your own terms. "Run your company like you are planning to sell it” was a piece of advice given to a room full of early stage companies attending a talk being delivered by a tech entrepreneur, who had successfully navigated the pathway from idea through development and scaling to a lucrative exit. He was calling it as it was: you are pursuing your respective endeavours to make money, so do everything you can to maximise that return. When great ideas are being converted into profit-generating businesses, the focus is often on the development of complex technologies, the routes to market, the sales strategies, the hiring of the very best employees quickly. Often the paperwork, the record-keeping, the ‘routine’ pieces of the puzzle are put on the long finger, to be dealt with when there is time. But rarely is there ever time and the longer the record-keeping is neglected, the harder and more expensive it becomes to put right. Irish companies are required by law to maintain a number of books and registers. These include proper accounting records that correctly record and explain the transactions of the company and that enable its assets, liabilities, financial position and profit or loss to be determined with reasonable accuracy at any time.  A company must keep registers of its members, directors and secretary, and disclosable interests. It must also keep copies of instruments creating charges and copies of directors’ service contracts. The Companies Act 2014 further requires companies to keep minutes of shareholder and director meetings. In respect of minutes from shareholder meetings, the minimum detail to be recorded is a summary of the proceedings of the meeting and the terms of the resolutions passed. In respect of minutes from board meetings (which includes meetings of committees of the board), the minimum detail to be recorded is the appointments of officers made by the directors, the names of the directors present, a summary of the proceedings and details of all resolutions passed. In the case of both meetings of the shareholders and directors of a company, the minutes should be prepared “as soon as may be” after the meeting has been held. Certain of the registers and documents required to be kept by a company can be inspected by the shareholders of that company. These are its registers of its members, directors and secretary and disclosable interests, and the instruments creating charges and directors’ service contracts. Members of the public are entitled to inspect a company’s registers of members, directors and secretary and disclosable interests. A company is permitted to keep any of these registers and documents electronically (other than minutes of meetings of shareholders) once it puts adequate measures in place to guard against, and detect, falsification and once they can be easily reproduced in legible form at a place in Ireland. When it comes to the day-to-day running of an Irish company, it would be unusual for a request to be made by a shareholder or a member of the public to inspect the registers and documents that the law permits them to inspect. On the other hand, if a company was the subject of an interested investor or acquirer, it would be most usual for them to require production of all these registers and documents for due diligence purposes without delay (subject, where the need permits, for obligations of confidentiality to be agreed and documented). When there is a gap in record-keeping, which is likely to occur when ‘the paperwork’ has been neglected, not only is the prospective investor or acquirer unable to satisfy themselves that they have the full history of the company in terms of its governance proceedings and compliance with its statutory obligations, but the impact in terms of cost on the target company and its owners to rectify that neglect under time pressure and the scrutiny of an impatient investor or acquirer can be significant. Record-keeping is one of the things that you as a business owner can control. Record keeping can be routine and inexpensive when the time is taken at the outset to get the processes, procedures and resources right. Even if you don’t have plans to sell your company, run it like you are planning to sell it. It’s better to get the record-keeping right in your own time and on your own terms, rather than it being one of the elements that undermines or adds unnecessary cost to that lucrative exit when it does come.   Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Could the fall in interest rates result in an economic ice age for western economies? By Cormac Lucey Across the developed world, interest rates have collapsed over recent decades. Yields on German government 10-year bonds fell below -0.7% this month while yields in Japan were hovering at -0.3%. Japan has struggled to combat low growth and low interest rates for 30 years. Only America, where rates on government bonds remain at about 1.6%, has avoided Japanification. So far. The trouble is the US may be headed that way too – its rate has halved since last October. Why have interest rates fallen so far, and where might they now be headed? Several factors influence underlying interest rates. The first is the rate of inflation. In theory, real interest rates (after we exclude the inflation factor) should be relatively stable. So, if inflation drops sharply, we would expect a sharp drop in interest rates. And inflation has indeed dropped sharply in western countries over recent decades since it peaked in the inflationary 1970s. Nonetheless, in recent times real interest rates have also dropped. It used to be the case that bank depositors got a rate of interest that exceeded the rate of inflation and provided them with real capital appreciation. That is no longer the case. Today, depositors get negligible or nil rates of interest income even though inflation persists and erodes the underlying value of their savings. There are other factors at play. The biggest cause of ultra-low rates is weak economic growth. If growth rates are high, there is substantial demand for investment funds which stokes demand for deposits (so that banks will have sufficient funds to lend) and supports higher interest rates. Low economic growth pushes interest rates down. Over the twentieth century, productivity per worker grew in the developed world at about 2% per annum. Since the turn of the century, underlying growth amounts to half or less than half of that rate. This problem has been described as “secular stagnation”. There has been extensive academic debate on the subject, but nobody has come up with a convincing explanation for this drop in underlying economic growth. Ageing populations are another factor propelling interest rates downwards. The longer we anticipate our life after retirement will be, the more we need to save to fund our retirements. If the supply of savings increases then, all other things being equal, we would expect the price of savings (i.e. the rate of interest) to fall. There are several problems with interest rates being this low. Central bankers have less interest rate-cutting ammunition with which to fight the next recession. It is notable that the European Central Bank is already contemplating monetary policy relaxation to fight the next downturn without having once felt able to increase its base rate of interest during the economic recovery since 2010. Commercial banks also have big problems as a significant element of their profits – interest income generated from current account deposits on which they pay no interest – has dried up in today’s low interest rate environment. That helps explain why the index of euro area bank equities has fallen in value by over 40% since January 2018. Albert Edwards, a strategist with the French investment bank, Société Générale, has long predicted this fall in interest rates and an economic ice age for western economies. He recently asked: “Do market participants really believe fiscal stimulus and helicopter money will save us from a gut-wrenching global bust that will make 2008 look like a picnic?” He argues that the current government bond rally is not a bubble, but an appropriate reaction to the market discounting the next global recession. This means that “the bubbles are not in the government bond market in my view. They are in corporate equities and corporate bonds”. Ouch! Cormac Lucey FCA is an economic commentator and lecturer at Chartered Accountants Ireland.

The UK’s Financial Reporting Lab recently spoke to companies and investors about what they wanted from cash disclosures, outside of the cash flow statement. This is what they found… By Thomas Toomse-Smith It has been said that investing is as much art as science. Numbers can tell you so much, but at the heart of every investment decision is a story – either that which the company tells or which investors interpret for themselves. But to allow investors to interpret that story correctly, they need disclosures that help them better understand the generation, availability and use of cash. This allows them to make an assessment of management’s historical stewardship of a company’s assets, as well as support analysis of future expectations. Cash and flow The core disclosure that supports investor needs on cash is often conceptualised to be the cash flow statement. However, while it clearly provides information about the flow of cash, does it do a good job of explaining how that cash is, and (more critically) will be, generated and used? Our discussions with investors suggest that the disclosures that help answer this question are often provided outside of the cash flow statement, and perhaps outside of the annual report completely. Our project focused on this supplemental, but nevertheless fundamental, set of disclosures; disclosures that are principally about the sources and uses of cash. What do investors want? Our discussions with investors concluded that what they want, at a high level, is an overall direction on companies’ cash position but that this should be supported by further details. We have summarised investors’ needs in the model outlined in Figure 1. A focus on drivers Companies note that communicating their strategy and performance are essential objectives of their investor communications. However, for many companies, their attention is on a number of performance-focused metrics (such as profit or adjusted profit) with cash metrics featuring as a supporting, rather than a leading, metric. While companies often do a good job of explaining some aspects of their wider performance, cash metrics and cash generation are often not fully explained. This wider cash story deserves better explanation. Both numbers and narrative are crucial for investors. However, the most effective disclosures are those where numbers and narrative are combined in a way that shows how future cash generation is underpinned by current cash generation. Two ways in which we saw companies trying to communicate this was through better disclosure around selection and use of key performance metrics (in line with the practices suggested in our recent KPI report), and through the use of narratives (that bring all the cash-related elements together). A focus on sources of cash Understanding the link between the operations of a company and its generation of cash is a key objective for investors. However, it is something that is not always easy to do from the information a company discloses. Investors that participated in our project noted that this lack of clarity is prevalent and that it can be challenging to understand how the operations of businesses are generating cash. Key areas where further enhancements would be welcomed include working capital and groups. While the generation of cash is important, to fully understand the health of a business, investors also need to understand their approach to working capital. Disclosures that provided more clarity were narratives about differing working capital requirements, cycles and metrics within different elements of a group, and disclosures detailing less common approaches to financing such as factoring or reverse factoring. While investors are interested in the overall capacity of a group to generate cash, it can also be important to understand where within the group the cash was generated, especially for credit investors. This is an area where there remain limited examples of good disclosures in the marketplace, but an area where investors were keen to obtain more information such as how much capacity was within the group and how the group manage capital and cash between its subsidiaries. Uses of cash Once investors have considered how a company generates cash, and the quality and sustainability of that generation, they then want to understand what a company intends to do with the resulting resource. While many investors feel that, in general, disclosure about the use of cash is relatively well-reported, they would like more information that supports their assessment of the future use of cash – namely, understanding priorities and the risks attached to them. Setting priorities for generated and available cash At its simplest level, capital allocation is a balance between maintaining and growing a business. However, there is a significant nuance in how these various priorities are balanced within any business and at any point in time. Differing considerations of the relative priorities will lead to a very different view when assessing a company. That is why information about how companies prioritise different stakeholders is useful. Many businesses have therefore taken to creating more formal disclosure, often in the form of a capital allocation framework. This approach is particularly popular with companies that are launching a new or refreshed strategy. While the disclosure of a framework often provides only a high-level picture of a company’s allocation priorities, it can serve to focus investor and management conversations on key aspects of the business. As such, investors often welcome such disclosure. Priorities in action Once investors are clear on management’s priorities, they then want information that supports their understanding of how those priorities are represented in the period, and how current decisions might impact future flows. Detail regarding capital expenditure, dividends and other returns are critical to achieving this understanding as they help establish whether management actions are aligned to the priorities. Variabilities, risks and restrictions To properly assess the future potential upside of a business, investors need to be able to assess the downside. Investors understand that returns are variable and should reflect the changing focus and priorities of the company, the call of other stakeholders and the availability of resources. Investors therefore value information that helps them understand the potential uncertainties and management’s reaction. When thinking about future availability of cash, they need information on: Variability of future outcomes: how does the company consider the range of possibilities for future cash use and how does that feed through to the prioritisation of decisions? Risks: what is the link between the risks facing the company and the outturn in cash generation, use and dividend? Restrictions: are there any restrictions on current or future cash, either through capital or exchange controls, availability of dividend resources or other items? Concluding message Overall, investors are not seeking to overburden preparers but they do want preparers to focus disclosure on the areas that are most fundamental to their investment story. The full Lab report is available on the Financial Reporting Council’s website, and gives more insight and examples. Thomas Toomse-Smith is Project Director at the Financial Reporting Council’s Disclosure Lab.  

Businesses in Ireland are working towards a low-carbon future, but the transition to a low-carbon economy needs to urgently accelerate. By Kim McClenaghan & Dr Luke Redmond Irish businesses are responding to the climate action challenge and to date, 47 companies in Ireland have signed Business in the Community Ireland’s (BITCI) Low Carbon Pledge. Signatory companies have committed to reducing their direct carbon intensity by 50% by 2030, and to report on their progress on an annual basis. The pledge companies operate in traditional carbon-intensive sectors such as agribusiness and energy/utilities, along with a range of other cross-sectoral companies from pharma/med-tech, beverages, transport, retailing, communications, technology and professional services. The pledge aims to demonstrate the commitment of Irish businesses to supporting the country’s transition to a low-carbon economy. The Low Carbon Pledge requires companies to reduce the intensity of their Scope 1 and Scope 2 carbon emissions by 50% by 2030. Scope 1 emissions refer to emissions produced directly from sources owned and controlled by a company, such as fuels used in boilers or vehicles, for example. Scope 2 emissions refer to those produced during the generation of electricity purchased by a company. The narrowing window of opportunity PwC was commissioned by BITCI to produce the inaugural Low Carbon Pledge Report. This work was conducted against a backdrop of mounting evidence that points to a rapidly closing window in which business and society can successfully tackle climate change and its principal driver: carbon emissions. The Environmental Protection Agency’s most recent pronouncements warn that Ireland faces an unfavourable emissions reduction environment due to ongoing challenges in successfully decoupling economic and emissions growth. Ireland is not on track to meet its 2020 and 2030 EU emissions reduction targets, and failure to achieve the 2020 target could result in financial penalties of up to €150 million. What’s more, the latest Intergovernmental Panel on Climate Change report estimates that countries and businesses have a window of just 11 years in which to successfully tackle the carbon challenge. Meaningful progress According to the PwC report, signatory companies have engaged positively with the decarbonisation challenge and have already delivered meaningful emissions reductions. The 47 pledge signatory companies have achieved an overall reduction of 42% in their absolute carbon emissions between the baseline period and 2018, and are on course to secure a 50% decrease in carbon intensity by 2030. Pledge companies have achieved a 36% reduction in average emissions intensity, in part by reducing their electricity usage by 60 million KwH between the baseline period and 2018. This equates to a cost saving of roughly €6.6 million. Energy efficiency-focused rationalisation and strategic investment programmes, coupled with an increasing use of electricity generated from renewable sources, has underpinned the emissions reduction activity to date. Upping the ante The PwC report, and the dataset that underpins it, provides a benchmark against which to assess the future carbon reduction efforts of the signatory companies. With an ever-increasing awareness of the risks of climate change and the importance of accelerating abatement activity, it is critical that the ambition of the Low Carbon Pledge also evolves. While the initial pledge group of 47 signatories is a significant achievement, it will be important to grow this number while extending the carbon commitment scope. Because of the significant intensity reductions over the baseline period to 2018, BITCI has upped the scope and ambition of the 2030 greenhouse gas reduction targets. A critical challenge for companies will be sustaining such reduction efforts and focusing on the delivery of further intensity improvements up to the 50% target and out to 2030, or an earlier date. Enhanced robustness To maintain the integrity of the Low Carbon Pledge, it is critical that businesses seek external assurance of their non-financial data. This is critical to enhancing the robustness of the emissions reduction actions and commitments reported as part of the Low Carbon Pledge. Seeking third-party assurance also provides companies with another opportunity to demonstrate their commitment to decarbonisation, while at the same time enabling companies to prepare for a transition to an increasingly onerous and transparent reporting environment. Scenario analysis The Low Carbon Report analysed four companies – Gas Networks Ireland, Dawn Meats, ESB and Heineken Ireland – to examine how companies are seeking to enhance the sustainability and decarbonisation of their business operations. The analysis found that senior management leadership is central to driving a meaningful response to the challenges of decarbonisation. Businesses should seek to embed decarbonisation and sustainability policies and actions in their business strategy, from both risk mitigation and value-enhancing perspectives. To test corporate strategies, scenario analysis should consider, for example, a high future carbon price, climate change impacts on global and regional GDP growth rates, or climate disruption within the supply chain. Evolving target-setting, coupled with the use of energy management systems and data analytics, can help ensure that companies make informed energy efficiency investment decisions. Strong leadership can help businesses prepare for a carbon-constrained world and ensure that their businesses are aligned with an increasingly carbon-conscious investor and consumer. While delivering carbon reductions through the procurement of electricity generated from renewable sources represents a positive mitigation action, companies could further enhance the integrity of such actions by procuring green-certified renewable electricity. Decisions by senior management to embed renewable energy sourcing targets, underpinned by green certificates, into company strategy could act as an important catalyst for driving further decarbonisation efforts. The case study analysis identifies investors as being increasingly interested in companies’ financial and non-financial metrics. For companies to truly demonstrate a commitment to decarbonisation and sustainability, it is important to place equal emphasis on their financial and non-financial reporting. Leading companies also seek to align the publication of their sustainability and annual financial reports. Such actions demonstrate that sustainability has become an integral part of the company’s core strategy, and associated metrics form part of the business’s key performance indicators.   Kim McClenaghan is Partner in Consulting and Energy, Utilities and Sustainability Lead at PwC. Dr Luke Redmond is Senior Manager, Strategy Consulting at PwC.

A new report proposes measures for the sustainability of owners’ management companies and lays the foundation for a more structured approach to managing apartment complexes or managed estates. By David Rouse In a professional audit or reporting capacity, Chartered Accountants may encounter owners’ management companies (OMC). Readers living in an apartment complex or managed estate may even have been asked to serve as an OMC director. OMCs, while in form incorporated typically as companies limited by guarantee (CLG), are in substance hybrid entities. They sit at a corporate crossroads between not-for-profit companies, property management businesses and residents’ associations (see Figure 1). Many readers will be familiar with the legacy construction and financial issues facing these companies. High-profile cases such as Priory Hall and Longboat Quay, as well as other less prominent estates, have featured in the press in recent years while corporate governance failings in OMCs receive periodic attention in court reporting. The country’s largest OMCs have multi-million euro annual service charge budgets. And yet, the stewardship of these companies is entrusted to unpaid, untrained directors (the term “volunteer director” is deliberately avoided, as in law, there is no such thing – a director is a director). There is as yet no firm handle on the number of OMCs in the country. However, it is estimated that the upper limit is likely to be about 8,000 companies. New report A recent independent report titled Owners’ Management Companies – Sustainable Apartment Living for Ireland considers issues that will be familiar to those with even a passing knowledge of managed estates and OMCs. The report was jointly commissioned by the Housing Agency and Clúid Housing. The Housing Agency works with the Department of Housing, Planning and Local Government, local authorities, and approved housing bodies (AHB) in the delivery of housing and housing services. Clúid is the State’s largest AHB, managing  just over 7,000 homes across the country. The inadequacy of annual service charges, failure to provide for building maintenance (sinking) funds, and the persistent problem of mounting debtors are just some of the topics assessed. International best practice is examined, and Ontario and New South Wales are among the comparator jurisdictions featured. The future demand for high-density housing is signalled in the context of new Government policy, such as the National Planning Framework and the Climate Action Plan. To audit or not to audit? Recommendations for reform across a range of relevant regulatory systems are proposed. Of interest to the accountancy profession will be the recommendation for the removal of the audit exemption currently available to OMCs, most of which, as noted earlier, are incorporated as CLGs. Companies Act 2014 provides the audit exemption for CLGs. In this way, small not-for-profit companies without shareholders may benefit from a reduced financial and administrative burden. (It should be noted that under sections 334 and 1218 of the Companies Act, any one member of the CLG may in effect demand an audit.) However, while OMCs are not-for-profit, they are responsible for multi-million euro property assets in the form of estate common areas. Considering the centrality of OMCs to property values, good title, and quality of living spaces, the value of an audit to members in terms of assurance, transparency, and governance cannot be overstated. Finance and governance The creditworthiness of OMCs in the context of current under-funding is also considered. Regulation over and above corporate compliance enforced by the ODCE is recommended. Dispute resolution outside of the courts is advocated, as are more cost-effective avenues for service charge debt recovery. Personal insolvency practitioners will be aware that OMC service charge debt is an “excludable debt” under the Personal Insolvency Act 2012. Only with the consent of the creditor (i.e. the OMC) may management fee balances be reduced or written off in a Personal Insolvency Arrangement. The report’s other recommendations include mandatory training for OMC directors, the standardisation of accounts to a format prescribed for OMCs, and enhanced insurance obligations. Reform may be some way off. In the meantime, practitioners should be aware that the Institute’s practice toolkit, Owners’ Management Company PQAs, was updated in 2018. This replaces the 2011 version. As the Institute’s product catalogue notes, and as may be recognised from sectoral weaknesses highlighted in this commentary, although OMCs can be small in size, they may be higher-risk clients. Future regulation of the sector could mitigate a number of the risks identified.   David Rouse FCA is an advisor with the Housing Agency, a director of the Apartment Owners’ Network CLG, and a director of one of the country’s largest OMCs.

Three years after its commencement, Construction Contracts Act, 2013 continues to provide a pathway to cash flow in the construction sector. By Pat Breen TD This innovative and important legislation for the construction sector, which was commenced in 2016, regulates payments and particularly the timing of payments under construction contracts. While many businesses in the construction sector are aware of this legislation, some businesses may not be fully aware of the detailed statutory protections and obligations set out in the Construction Contracts Act, 2013. One of the key objectives of the legislation is to provide payment certainty for subcontractors, who were considered vulnerable in the payment cycle in the construction sector. As the construction sector continues to expand, cash flow is critical and it is cash flow that is at the core of the Construction Contracts Act, 2013. Therefore, construction businesses should ensure that their payment practices comply with the terms of this legislation. I consider that members of the accountancy profession are uniquely placed to encourage construction businesses across the country to review their payment practices to ensure that they comply with this legislation. I welcome the opportunity provided by Accountancy Ireland to highlight this legislation, and a brief summary of the main provisions of the Act is set out below. Further information on the Act is available on the website of my Department at www.dbei.gov.ie. Applicability of the Construction Contracts Act, 2013 to construction contracts The Construction Contracts Act, 2013 applies to certain construction contracts entered into after 25 July 2016, but not to all such contracts. For example, it excludes: Contracts of a value of not more than €10,000; or Contracts that relate only to a dwelling of not greater than 200 square metres where a party to such a contract occupies, or intends to occupy, the dwelling as his/her residence; or Contracts between a State authority and its partner in a public private partnership arrangement. All other construction contracts must comply with the provisions of the Act and the parties may not seek to exclude a contract from the legislation under any circumstances, whether the contract is an oral contract or a written contract. Construction contracts to which the Act applies must provide for the following contractual terms: The amount of each interim and final payment, or an adequate mechanism for determining those amounts; The payment claim date for each amount due, or an adequate mechanism for determining it; and The period between the payment claim date and the date on which the amount is due. Main contracts and subcontracts Main contractors are at liberty to agree their contractual terms with their clients, subject to adhering to the mandatory provisions required by the Act as outlined above. However, if a main contract fails to fully incorporate the mandatory provisions, then the Act imposes the applicable contractual term or terms set out in the Schedule to the Act, terms which are also applicable to subcontracts. The Act stipulates that all subcontracts must at least provide the following payment claim dates: 30 days after the commencement date of the construction contract; 30 days after the payment claim date referred to above and every 30 days thereafter up to the date of substantial completion; and 30 days after the date of final completion. The date on which payment is due in relation to an amount claimed under a subcontract shall be no later than 30 days after the payment claim date. The Act permits the parties to a subcontract to make more favourable provision for a subcontractor than the above contractual terms. Payment claims An executing party – the party which carries out the work under a construction contract – is required to submit a payment claim notice to the other party no later than five days after the relevant payment claim date. If the other party disputes the amount claimed by the executing party, that party is required to respond to the executing party in writing no later than 21 days after the payment claim date setting out the reason(s) why the amount claimed is disputed and the amount, if any, that it proposes to pay to the executing party. It may be possible for the parties to reach an agreement on the amount to be paid to the executing party. However, if no such agreement is reached by the payment due date, the other party is legally required to pay the executing party the amount, if any, which the other party proposed to pay in its response to the contested payment claim notice from the executing party. This payment shall be made no later than the payment due date in accordance with Section 4(3)(b) of the Construction Contracts Act, 2013. Statutory adjudication of payment disputes The Construction Contracts Act, 2013 also introduced, for the first time in Ireland, a statutory right to refer a payment dispute for adjudication. A ‘notice of intention’ to refer a payment dispute for adjudication must be served by one of the parties to the payment dispute. The parties may then jointly agree to appoint an adjudicator of their own choice, within a five-day period. However, if the parties cannot reach agreement on who to appoint, an application may be made after the five-day period to the Chair of the Construction Contracts Adjudication Panel, Dr Nael Bunni, to request the appointment of an adjudicator to the dispute. The appointed adjudicator, whether appointed by agreement of the parties or by the Chair, is required to reach a decision on the dispute within 28 days. This period may be extended in certain circumstances.   Pat Breen TD is Minister of State at the Department of Business, Enterprise and Innovation.

Large customers are good for business, but can stretch your cash flow.  By Peter Brady Have you recently received a ‘polite letter’ from your US multinational corporation (MNC) customer advising of a stretch in your credit terms from 30 days to 90 plus? Or, indeed, from any of your MNC customers? In recent years, the extension of MNC credit terms has become business as usual across the globe but for SMEs, it is anything but business as usual. Think about it. How would an extension of credit terms impact on your cash flow and projections this year? And what are the implications for your growth strategy in 2020 and beyond? Winning a contract with a large MNC is a measure of success for established SMEs. However, an extension of credit terms can feel like a double-edged sword as it puts excessive strain on cash flow. Why does it matter? A strain on your cash flow can have many implications, all of them negative. The first impact is on your suppliers – they expect payment in 30 days. There is an immediate gap in cash flow and you are unlikely to have sufficient sway with your suppliers to realign. This could mean: You are not in a position to fund the initial costs of fulfilling contracts; Pressure is placed on your existing supplier relationships in the form of increased risk around quality, timely delivery and higher prices; Capacity to deliver on-time to customers is affected; and Ability to grow the business at pace is limited. The lost opportunity  It may seem obvious, but having cash tied up in debtors with long credit terms is a fundamental challenge for most SMEs. If SMEs could access this cash early, it would give a distinct competitive advantage when negotiating terms with key suppliers. Think of what you could do if your invoices were paid on day one, not day 90. First, you could pay your suppliers early, enhance the relationship and ultimately secure better terms. Second, you could deploy funds into driving new customer acquisition and fund new business tenders with the comfort of cash flow certainty. So what do you do? You have two options: 1. You could try to negotiate: know where you stand in your customer’s eyes. Do your products or services play an important role in their success? Is your product or service critical to their delivery? Even so, unless you are the sole producer of a key strategic element, there’s another company out there to potentially replace you. Alternatively, your customer might offer softer credit terms in exchange for a pricing discount – but cutting margins is an extremely expensive source of finance and unlikely to be recovered. This course of action doesn’t make good business sense, as it is a race to the bottom. 2. Look at funding options to bridge the gap: the financial market is developing all the time to reflect the needs of business. For decades, when Ireland’s SMEs needed to fill the cash flow gap left by extended credit terms, they had limited choices – commercial overdrafts, short-term lending or an invoice discounting facility. That may have been adequate in the past but such is the success, ambition and global reach of Irish SMEs across all sectors today, this range of funding options falls short of their requirements. Commercial overdrafts are harder to secure and are generally seen as an unreliable method of funding, not directly aligned to the changing requirements of a business. Similarly, short-term lending is onerous to put in place and comes with significant levels of conditionality. An invoice discounting facility continues to plug the cash flow gap for many SMEs in Ireland. However, invoice discounting facilities are operationally clunky and carry significant fixed and hidden costs and limitations. They are therefore not really fit for purpose for today’s SMEs. Many SMEs often have a small number of key strategic customers in their sales mix. Supported by government bodies such as Enterprise Ireland, Ireland’s SMEs have a global footprint. Exporting is crucial to scalable business success, and not just to Western Europe. SMEs are securing contracts across the globe – US, Canada, EMEA and Asia. Invoice discounting facility For years, the invoice discounting facility has serviced working capital funding requirements. However, the facility comes with three major limitations: The facility limit; Geographical restrictions; and Debtor concentration risk limits. The facility limit At the outset, SMEs are subjected to a long and onerous process to get approval for the invoice discounting facility. Fair enough, you may say, as this is effectively a loan and it follows that the bank providing it decides how much the facility is for. SMEs must enter into a long-term commitment, often saddled with non-usage charges or exit fees. SMEs must also pay credit insurance and sign a personal guarantee – something entrepreneurs have grown to fear. Geographical restrictions Exporting to the UK? Great. Exporting to United States (US)? Not so great. Country risk and the law of the land plays a major role in how traditional lenders assess the risk and granting of facility limits. If the country in which your customer is located is outside of what is considered in banking terms to be palatable, funding limits and exclusions will apply. Debtor concentration risk limits The most common reason for restricting funding under an invoice discounting facility remains customer or debtor concentration. It applies when an SME becomes over-exposed to a single debtor. The debtor could be a large household brand name, but traditional lenders must impose facility limit restrictions. For SMEs, it is somewhat ironic that the more business you do with a key customer, the more your funding is limited. So, back to your US multinational extending its credit terms. You’ve worked tirelessly to win this business, but you can’t sustain 90 days’ credit and this customer accounts for over 60% of your debtor book. Your business needs: Consistent certainty of funding, without any limit relating to geography or debtors; Funders who recognise the strength of your business model and the substance of the underlying transactions; and Access to working capital to scale your business globally. Market and product innovation Invoice, purchase order and recurring revenue trading are collectively known as “receivables trading”. Receivables trading ticks all the boxes. It enables SMEs to leverage their customer relationships. By selling invoices and future invoices (purchase orders) to a pool of capital market funders, SMEs can access finance when they need it. What difference do capital market funders make? The funders are capital market institutional funders, pension funds, corporates and sophisticated investors – and there is a large pool of these funders. The fact that there is not just one entity, but a pool of funders purchasing the receivables (invoices or purchase orders) eliminates the requirement for imposing concentration or geographic limits on the SME. It extinguishes the need for any commitment, lock-ins or fixed costs. At no stage is there an ask for a personal guarantee. This funding solution puts control back into the hands of SMEs and allows them to decide when they need to access funding on their terms – a liberating benefit. How does it work? Receivables trading is available via an online platform. A pool of institutional funders (the buyers) are members of the platform. SMEs (the seller) uploads their invoice or purchase order and the buyers purchase them. The model is ideally suited to established SMEs with MNC or sovereign debtors. The SME can use the online platform in conjunction with their existing facility by carving out specific debtors from the invoice discounting facility. In conclusion Business is constantly changing and working capital funding has caught up. Alternative funding where sellers and buyers connect directly via an online platform is fast becoming the norm. With this funding solution, SMEs can tender for business of any scale globally – confident that they can fund the upfront costs. It’s a gamechanger for most. According to the Central Bank Survey of SMEs, which was published in January 2019, the top two reasons for credit applications were working capital, and growth and development. ISME’s quarterly business survey reveals that 70% of Ireland’s SMEs still rely solely on traditional bank funding. In Europe, it’s only 30%. Alternative funding is the future of funding. Peter Brady FCA is Co-Founder and CFO at InvoiceFair.