Finlease End of Financial Year Wrap Up – The Good, Bad & Ugly

Finlease End of Financial Year Wrap Up from CEO Mark O’Donoghue

It would be an understatement to say that this past year has been far from sailing on smooth waters.

As we conclude the 2022 financial year and move into the 2023 financial year, this forward landscape will again test us at many levels.

It will very much be a case of the Good, the Bad and the Ugly.

The Ugly

The Covid legacy, China & the Ukraine have seen us quickly move from international economies working desperately to maintain economic momentum to now applying the brakes to slow down the risk of rampant inflation.

As we stand today…

• Interest rates are back to 2015 levels (3% above the very low interest rates we saw less than 12 months ago)
• Fixed-rate home loans pushing over 5%
• Vehicle and equipment finance hovering around 6%
• Raw material, component, and labour costs escalating due to demand exceeding supply &/or an inability to ship is driving the costs of all 3 areas significantly higher and in the process of adding to the existing inflationary pressure.

It’d be fair to say that this is a short-term issue that will be rectified when supply equals or exceeds demand. However, one can’t help but take the view that most of these areas will come back to some extent but not to those historically lower levels.

The Bad

On the local front, no doubt many who’ve committed to or are in the middle of fixed-price supply contracts are in a world of pain. This is a particularly concerning area, not only for those organisations but for any suppliers to them.

So what does this all mean moving forward?

• We may see a spate of companies going into voluntary administration as a defence mechanism
• This may set the platform for renegotiation of supply or protect those owners from being liable for knowingly trading their companies whilst insolvent

If this does occur there is a high likelihood that suppliers to those organisations will be caught with bad debt. They may also be subject to the clawback of prior monies paid under the powers of an administrator where they may deem those suppliers had received a preferential payment prior to the company going into administration.

What steps can be taken by suppliers to minimise this potential damage?

Several service providers can assist in reducing these risks. Below are links to products provided by one of those providers – National Credit Insurance (NCI).

The use of the PPSR system to position the supplier as a secured creditor, could afford protection from a preferential payment clawback, plus improve their chances of any residual debt recovery.

The utilisation of a debtor monitoring platform

The use of trade credit insurance

We’re still a little “upstream” from potential issues, and time spent now may substantially reduce “downstream” stress.

The Good

On a positive note…

• We can see that most of our clients have never been so busy
• Their biggest challenge, simply managing the level of work or potential work they have ahead of them

For clients acquiring additional or replacement capital equipment over next year, they have the luxury of the existing government tax incentive, allowing them to 100% write off equipment purchased and installed before June 30, 2023.

We’re seeing the early shoots of clients bringing in offshore labour under the 482 Visa arrangements. At this stage it’s a slow burn but we expect it to gather momentum.

The component and raw material aspects are largely governed by the present international issues, and we expect to see improvement in this space, if both the China and Ukraine issues are resolved.