Substantially lower turnover, unpaid invoices and limited availability of capital from the banks led many small and medium sized enterprises (SMEs) to lay off staff, defer payments or cease trading in recent months, a new report from the Central Bank has found.
The regulator published a special edition of its SME Market Report on Tuesday, providing context, information, and a review of the challenges faced by Irish SMEs in recent months following the emergence of the Covid-19 pandemic.
The survey suggests almost a quarter of companies had ceased trading temporarily or permanently in April, although this declined to 11 per cent by May 31st.
The worst hit sector by April 19th was accommodation and food (88 per cent), followed by construction (71 per cent). Even as firms began to trade again 62 per cent of firms in the accommodation and food sector were still not trading as of May 31st, it said.
The report says turnover is “substantially below normal” for many businesses, and while the declines “have been large” they differ by sector.
For instance, 38 per cent of companies report that turnover is more than 50 per cent below normal, while 21 per cent of firms report turnover more than 75 per cent lower. In the accommodation and food sector, 77 per cent report turnover more than 75 per cent below normal.
On the other hand, a substantial minority of firms have not experienced a decline in turnover.
Also notable, the Central Bank says, is the “substantial amount” of unpaid invoices owed to firms. Survey evidence suggests 39 per cent of firms have unpaid outstanding invoices.
“Unpaid outstanding invoices amount to 20 per cent of 2019 revenue at the median, which may pressure cashflow or amplify shocks upon company failure,” the report says.
It also notes that firms have adjusted to lower turnover through workforce measures such as reduced hours or temporary layoffs. It says there have been fewer permanent layoffs (6 per cent) than reduced hours (37 per cent) or temporary layoffs (33 per cent).
Companies have also reduced non-personnel costs, particularly among those which suffered the greatest declines in turnover, such as in the accommodation and food sector.
Companies reporting revenue declines of more than 50 per cent have reduced non-personnel costs by 43 per cent, but four in 10 businesses have not reduced costs at all.
Payments
Payments to Revenue, and on properties and loans, have been deferred or renegotiated, the bank said. Changes or deferrals of payments to manage cashflow are reported by 42 per cent of business. This increases to 91 per cent of companies operating in the accommodation and food sector.
Fewer adjustments were reported for loan payments, but 57 per cent of SMEs have no debt. Central Bank data suggests 29 per cent of non-financial Irish SME loan balances had active payment breaks as at June 26th.
Small undrawn balances for some SMEs “indicate limited availability of working capital credit through the banking system”, the report says.
Loans of less than €250,000, approximating SME lending, declined in volume by 19.6 per cent in April and by 28 per cent in May compared to 2019 after increasing earlier in the year.
The increased lending was particularly evident in March (28.9 per cent) when the risk from Covid-19 began to materialise in Ireland.
While SMEs “do not report changes in access to finance even as banks report tightening lending standards”, the report suggests capacity for increased borrowing “may be curtailed by higher indebtedness among some firms in the accommodation and food sector”.
