Microenterprises in Romania have difficulty in maintaining a positive financial status. At an industry level, their debt ratio reached 73%, and the higher impact was on companies with a turnover lower than EUR 50,000, thus reaching 81%.
The retail ratio is of 90%, while the most capitalized companies are the healthcare ones with a ratio of 49% and professional services with 52%. This analysis is part of a survey conducted by Instant Factoring about the evolution of microenterprises (companies with a turnover of up to EUR 500,000) based on the preliminary data in 2018.
Out of the 525,000 companies within the industry, 37% of them (197,000) had a negative working capital. The current debt ratio, for less than a year, was of RON 122 billion, i.e. 60% of the total debt.
Microenterprises had receivables of RON 58.5 billion, most of them having an industry turnover in the medium range, with almost RON 20 billion, 33.6% from the total ratio. The first 3 industries that have the highest volume are constructions with nearly RON 10 billion, professional businesses with RON 7.4 billion and RON 6.9 billion.
Another issue is the Days Sales Outstanding, which further leads to not paying the debt and has a direct impact on the liquidity level of the companies within the industry. For companies with a turnover higher than EUR 50,000, the average period for the Days Sales Outstanding (DSO) was 228 days, and the Days Payable Outstanding (DPO) is 538 days. The industry average was 164 days for DSO and 341 for DPO. Retail, health care, social care and HORECA have the fastest DSO, i.e. 45, 67 and 73 days. From the DPO perspective, the faster ones are health & social care, transport & storage and education, with 110, 174 and 184 days.
For liquidity settlement, some companies chose the loan options. They grew with 4.8% compared to December 2017 and with 15.6% compared to December 2013, the service industry having the highest weight, of 45%.
“The liquidity level is one of the indicators that measure the success of a company, and to keep it a positive level, entrepreneurs dispose of other funding solutions, that do not increase the debt ratio. Factoring is one of them, a fast and accessible way, which implies paying the bills before term, for a fixed fee, in order to allow access to liquidity and for the company to conduct its current business”, said Adina China-Birta, Country Manager, Instant Factoring.
“We estimate that the funding ratio for microenterprises through factoring products will face a growing trend within the last 4-5 years, with the potential of reaching even 10% of the market total which is usually corporate. In 2019 we had a growth of more than 5 times of the funding ratio, thus helping entrepreneurs cover their liquidity needs for the current businesses that they are conducting”, added Adina China-Birta.
Funding risks appear when an entity cannot obtain enough funds to fulfill its financial obligations. Commercial debt represented more than 19% of the total ratio in 2018, and retail, construction and wholesale had more than half of the economic sector ratio.
Regarding the outstanding payments and those to the suppliers, the construction industry reached RON 2 billion, followed by retail with RON 1.6 billion and the process industry with RON 700 million. The companies that are active in the water & sanitation and education industries had the smallest outstanding payment, of 27.7, respectively RON 12.9 million in 2018.
In 2018, the fees and taxes paid by microenterprises in Romania to the public budget had a value of RON 4.2 billion. The middle average of the industry represented by companies with a turnover between EUR 50,000-250,000 had the highest paid volume of fees and taxes, of RON 1.8 billion, a total of 43%.
Even if at an industry level, the microenterprises faced a growth regarding the number of companies and the turnover, the problems concerning the work force, the debt level and the speed at which they recover money from the market and the lack of liquidity, they are positioned within a context that is unfavorable to guarantee the current activity and, even more, development. All these while financial obligations, such as salary and tax payments, cannot be postponed.
Instant Factoring is the first FinTech Company for online factoring in Romania dedicated to small and microenterprises and a member of the Association for Fintech Innovate Finance companies headquartered in London.
Instant Factoring is an IFN registered at the National Bank of Romania. By launching the online factoring platform www.instantfactoring.com, the company undertakes the mission to support the development of microenterprises through fast and easy funding solutions, by using technology, Instant Factoring has won both “Startup of the Year” and “Best Fintech Startup” at the Central European Startup Awards in 2018.”