Picking itself up after a year of losses, financial services company Earlypay Limited (ASX: EPY) has secured a new invoice and trade finance warehouse facility with an initial senior funding commitment limit of $220 million. The financial settlement of the facility is set to take place in January 2024.

In addition to this milestone, Earlypay is actively pursuing the implementation of a subordinated debt layer into the facility. Substantial progress has already been made, with the Company in the advanced stages of negotiations with a mezzanine provider. The finalisation of this aspect is expected to occur in the third quarter of FY24.

Earlypay Chief Executive Officer, James Beeson, said, “Over the past three months we have achieved several key milestones, notably the acquisition of Timelio, resolution of RevRoof and refinancing of the invoice and trade warehouse facility. Collectively, these milestones materially improve our operational efficiency and financial performance heading into the second half of FY24. Whilst we have incurred some setbacks over the past 12 months, we are now emerging from that period a far more resilient and streamlined business with the building blocks in place to take full advantage of growth opportunities ahead.”

Earlypay’s primary product is invoice financing, providing crucial support to small and medium-sized enterprises (SMEs) grappling with cash flow pressures. The Company also offers financing solutions for SMEs to invest in equipment and vehicles. In FY23, Earlypay faced a reported loss after tax of $7.7 million, driven by outsized single customer exposure and costs. During the same period, it acquired Timelio, a specialist invoice and trade finance provider with a strong presence in Victoria. It has been reviewing its operations to optimise costs.

The newly secured facility, designed to fund both invoice and trade finance receivables, is expected to yield significant financial and operational benefits. This includes a reduction in the overall cost of funds by approximately 1.0% compared to previous invoice and trade facilities, the ability to expand the $220 million senior commitment limit in line with future growth, and streamlined intra-month transactional flows along with other operating efficiencies. The senior funding for the facility is being provided by a major Australian bank.

As part of the financial restructuring, Earlypay anticipates the release of at least $20 million in cash progressively throughout Q3 FY24, aligned with the settlement of the facility and mezzanine debt layer. Coupled with the $8.4 million released following the resolution of RevRoof, the Company is set to have substantial cash reserves available for deployment in value accretive initiatives, including the partial repayment of the corporate bond facility and a share buy-back.

Due to the uncertain macroeconomic environment for SMEs, characterised by input cost pressures, rate increases from the Reserve Bank of Australia (RBA), and heightened pressure from the Australian Taxation Office (ATO) to recover debt, Earlypay remains cautious. 

Notably, funds in use (FIU) have decreased in H1 due to tighter risk settings, reflecting heightened risks of SME insolvency and lessons learned from major defaults. Earlypay has actively pursued the exit of clients that do not align with the current risk appetite or business model, demonstrating a commitment to maintaining a resilient and sustainable operation in the face of challenges.

With the new funding facility in place, the Company’s goal is to service more SMEs and diversify its income bases.