The ongoing health emergency in Italy over the next three months will have an impact on the working capital (or cash flow) of SMEs estimated at between EUR 10 and 19 billion out of a total of EUR 342 billion in trade receivables and payables.
The alarm has been raised by the first Working Capital Observatory created by CRIBIS, a CRIF group company specializing in business information, and Workinvoice, the first Italian digital invoice trading platform.
The Observatory analyzed a sample of approximately 84,000 small and medium-sized enterprises that have a turnover between 2 and 50 million euros, based on the complete data of the 2018 balance sheet, and calculated the possible extension of collection and payment deadlines due to the economic repercussions of the Covid-19 emergency.
CRIF Ratings, the CRIF group's rating agency, examining the same sample of companies, has estimated that overall financial requirements throughout 2020, including the repayment of financial debt and maturing investments, could reach 45 billion.
Simulations carried out on the sample of SMEs assessed the effect of up to 20 days' collection time on EUR 190 billion in trade receivables and 10 days' collection time on EUR 152 billion in trade payables. The estimated impact indicates an increase in credits of between 30 and 41 billion and an increase in net working capital of between 10 and 19 billion.
Assuming an increase of up to 20 days in collection times, the Observatory found an increase in trade receivables of around 41 billion euros, or 22% of the total amount of outstanding credit. At the same time, the increase in days of payment to suppliers would result in an increase of trade debt of 22.6 billion, or 15%. On a like-for-like basis, the worsening of payment habits among the 84,000 companies examined corresponds to 18.6 billion euros (+11% of net working capital).
Assuming a significant and widespread 70/80% drop in turnover over the next 3 months (equal to 20% on an annual basis) according to the CRIBIS Workinvoice Observatory, the increase in net working capital to be financed would fall to 14.7 billion euros, assuming that such a spectacular drop is accompanied by further delays in collection and payment times. Inventory reductions can only temporarily alleviate the situation, but inventories are expected to be replenished in the coming months.
Due to the Covid-19 emergency, both possible scenarios increase the companies' need for liquidity, which is squeezed by the increase in collection times, as well as a non-proportional compensation of payment delays to suppliers and a likely reduction in turnover.