Buy now pay later company Openpay has reported a spike in bad debt charges and arrears as it pursues an aggressive growth strategy in the United Kingdom and the United States, as well as locally.
And its heavy cash outflow from operating activities has prompted its auditor to say the company will need to secure additional funding in support of its business growth.
The company’s 2020/21 financial report details 55 per cent growth in the receivables impairment expense to $12.2 million. Gross receivables were $63.2 million at June 30.
The arrears rate rose from 0.8 per cent at 30 June 2020 to 2.8 per cent at 30 June this year.
The company said the 55 per cent increase in bad debt charges was a result of portfolio growth as well as “early stage” losses in the UK related to the company's biggest retail merchant.
“The portfolio has since returned to more normalised performance levels,” it said.
It wrote off $10.1 million in bad debts, consisting of credit and fraud losses, that accounted for 3 per cent of total transaction value. The company’s target level of credit and fraud loss is 1.5 to 2.5 per cent.
It appears that such losses are a cost of maintaining momentum in the highly competitive and fast growing BNPL market. However, elevated bad debt charges and arrears rates do undercut the claims of BNPL companies that they are “changing the way people pay, for the better.”
Active customer numbers rose 69 per cent to 541,000 and active merchant numbers rose 77 per cent 3,800.
Total transaction value rose 77 per cent to $339 million. Revenue rose 44 per cent to $26 million and operating expenses 68 per cent to $81.4 million.
The company made a loss of $63 million, compared with a loss of $35.4 million in 2019/20. Cash outflow from operating activities was $66.4 million, compared with an outflow of $57.6 million in 2019/20.
Auditor PwC said that as a result of the cash outflow, “the ability of the group to continue as a going concern is dependent upon maintaining existing cash reserves and debt facilities and securing additional debt facilities and/or the issue of new shares.
“The group will be required to secure additional funding options, either debt or equity, in support of its business growth and working capital. A material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern.”