Earlypay shows that its a struggle being a debt collector

Earlypay (ASX:EPY) is one of the ASX’s handful of debt collectors companies and it has been sold off by over 10% this morning. One of the biggest risks with companies like this is that one particularly large creditor will go bust and that is just what has happened.

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Earlypay’s largest creditor goes bust

Earlypay told its shareholders that RevRoof, its largest secured creditor by exposure, went into voluntary administration. Earlypay had $29m in exposure to the South Australian roof renovation company.

Earlypay told its shareholders that it would eventually recover the exposure and that its FY23 guidance would be met. But to state the obvious, this is no guarantee.

The saving grace for shareholders is that the exposure is secured by accounts receivable, equipment and inventory assets, but it will be a lengthy process to recover the money. 

It could’ve been worse

At least Earlypay itself has not gone bust as a result of this. And this is not a situation entirely without precedent. 

Back in June, Collection House (ASX:CLH) went into administration after major debtor Volt Bank abandoned its banking ambitions. In all honesty, Collection House had been in trouble for long before that – as evidenced by its desperate asset selling. 

Earlypay and its peers remain risky

But even though Earlypay lives to fight another day, it goes to show that it is a big risk for debt collection companies (and their investors) to have large exposure to one particular company. 

Furthermore, we suspect there could be more to come in 2023 as the bite of interest rate hikes begin to be felt. 

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