Leading invoice finance provider Optimum Finance reports on the financial first half-year impact on SMEs of the pandemic and forecasts the outlook to March 2021.
The firm saw an average 25% reduction in turnover across all SMEs between April and June 2020. 30% of its client businesses paused trading almost completely during these months due to being in one of the most affected sectors: hospitality. The pause in trading lasted until lockdown restrictions began easing later in the summer.
Increases in turnover during the same period were evident in domiciliary care businesses, temporary healthcare recruitment firms and companies supplying to the NHS. Some of these businesses required immediate additional funding to be able to meet increased pressure for their products or services.
The majority of Optimum clients, along with the majority of businesses throughout the UK, utilised Government funds that were available. Some businesses chose to invest in new machinery and equipment, resulting in increased margins and efficiencies for the future. Therefore, ultimately protecting their business and affording them the ability to repay those funds borrowed, as they become due.
At the end of Q1 and throughout Q2 2020, as result of businesses taking advantage of the government funds available, Optimum saw a decrease in borrowing levels and less utilisation of the funds made available through their facilities.
At the beginning of June 2020, Optimum saw customer aged debt balances over 90 days peak at 15.2% of total sales ledgers as businesses took longer to pay, uncertain of the times ahead. Since then, those levels have been slowly improving and are now even lower than pre-Covid levels, with the aged debt balance over 90 days currently equating to 7% of total sales ledgers.
As a result of the increase in ageing mentioned above, Optimum saw average Days Sales Outstanding (DSO) increase steadily from April until mid-June, and then slowly decrease again. This is reflective of the market as a whole.
Optimums levels of client borrowing went as low as 50% of what they were pre-Covid, with SMEs still not needing to fully utilise their facilities. This is partly due to reliance on and the availability of Government loans and furlough schemes, and also takes into account necessary cost-cutting across the board as businesses review their spending. Recently we have begun to see an increase in utilisation of the facilities again and this is continuing to rise.
Forecast for 2021:
Optimum anticipates that by the end of the first quarter of 2021, they will see a further rise in borrowing levels unless the Government schemes are extended, or businesses are given more time to repay deferred VAT payments.
Although some Optimum clients have lost customers in 2020, they have seen a marginal increase in the average invoice value processed. This demonstrates the focus given to increasing revenue from remaining customers.
Optimum are expecting to see a continued high level of acquisitions in 2021, building on the trend seen in the latter half of 2020. More business owners are likely to take the opportunity to de-risk and sell up, and others take advantage of those companies on offer – particularly if they happen to be a distressed competitor.