“A vibrant, profitable SME sector is not only essential for the financial health of the State and the Exchequer, but it is also the basis upon which our trade association survives. ISME desperately hopes that the July Stimulus package announced last week will succeed, but we fear it will not be enough” - the words of ISME CEO, Neil McDonnell, following the Government’s announcement of the July stimulus package in recent times.
In April, ISME surveyed a number of accountancy members to ascertain what the average SME owed in trade credit to other SMEs. The then figure was €78,000. We conducted the same survey last week and found that the B2B creditors’ figure had dropped 2.6 percent to €76,000.
On one hand, this can be viewed positively and shows that there is at least some degree of debt being settled within the economy, and some businesses can pay their way. Anecdotally, we also hear that some businesses are not extending trade credit and are insisting on cash terms. Some other suppliers are also essential for many businesses and may be able to exact fast repayment from their debtors.
However, the fact that the outstanding trade credit figure is static in a reduced trading environment is worrying. The €76,000 figure represents approximately €10.6bn of potentially impaired B2B debt between SMEs in the Irish economy. The maximum grant assistance of €25,000 available in the July Stimulus must be set in this context., Regrettably, the grant remains available only to businesses which pay rates. Also, there is a new condition attached to the grant which excludes businesses with a turnover higher than €100,000 per employee. This penalises high turnover low margin businesses.
Separately, ISME has also surveyed members (see below ) on the survival/mortality prospects for their business. Encouragingly, the cumulative total of businesses that believe they will close within one month has fallen from 11.2 percent in April to 2.7 percent in July. The cumulative total of businesses that believe they will close within six months has similarly fallen from 69 percent to 37 percent. Businesses are more optimistic about survival, but clearly, a substantial number of them will not make it through COVID-19.
It is in this context that many of the liquidity measures announced in the July Stimulus have fallen short, the majority of measures announced are debt-based at a time when both SMEs and their lenders are sceptical about their ability to repay lending. While the TWSS has reduced the rate of cash burn for businesses, it can only be used to service payroll costs, not to pay down debt.
