SME finance company Earlypay reported strong demand for invoice finance, as businesses look for ways to overcome cash flow problems, but it is being much more selective in the face of deteriorating credit quality and a higher business failure rate.
Earlypay released its financial results for the six months to December yesterday, reporting that as a result of client attrition and the winding up of a number of accounts, its funds in use fell 18 per cent to A$283.8 million, compared with the previous corresponding period.
The decline would have been greater, but Earlypay acquired $33 million of trade finance receivables from Timelio.
As a result of the runoff of its book, net interest revenue fell 25.8 per cent to $6.6 million. Taking management and administration fees into account, net revenue fell 19 per cent to $18.2 million.
The credit impairment expense was reined in from $14.1 million in the December 2022 half to $900,000 in the latest half.
Net profit was $2 million – turnaround from a loss of $5.4 million in the previous corresponding period.
One of the big issues the company faced over the past year was the failure of its biggest debtor Revroof, which went bust in December 2022 leaving Earlypay with a net exposure of $29 million.
The recovery process was completed in December last year and $8.4 million was released to Earlypay. In total, Earlypay incurred a $10.5 million credit loss and $4.7 million of recovery related expenses.
The company included a proforma profit and loss statement, excluding the impact of Revroof. On that basis underlying profit rose from $1.6 million in the December 2022 half to $2.9 million in the latest half.
While the Timelio acquisition has bolstered its book, the composition of the Timelio assets is different. As a result, Earlypay’s net interest margin fell from 5.1 per cent to 4.6 per cent.
Earlypay chief executive James Beeson said the company has been impacted by the volatility in the SME market but the business has been stabilised.
However, it’s not all plain sailing yet. The company also reported that earlier this month it breached the “portfolio parameters” of its equipment finance warehouse.
Earlypay has been granted a waiver by the funders and is negotiating changes to the parameters.