Earlypay’s FY26 Earnings Outlook Clouded by Rising Costs and Credit Losses

Earlypay’s Revised Outlook

Earlypay Limited (ASX, EPY), a key player in providing working capital finance solutions to Australian SMEs, has announced the withdrawal of its FY26 earnings guidance. Initially forecasting a 15% to 20% increase in earnings per share compared to FY25, the company now cites evolving trading conditions and increased downside risks as the primary reasons for this decision.

Cost Pressures and System Upgrades

A significant factor behind the guidance withdrawal is the higher-than-expected costs associated with the rollout of Earlypay’s new Invoice Finance loan management system. These costs are anticipated to persist through the second half of FY26 until the migration completes near year-end, after which the company expects to realise substantial operational efficiencies.

Alongside system implementation expenses, Earlypay is ramping up investment in its product and distribution capabilities. While these initiatives are designed to support growth in Funds in Use (FIU), they are currently weighing on short-term profitability.

Credit Losses and Portfolio Performance

Another challenge has emerged in the Equipment Finance segment, where credit loss expenses have risen to approximately 1.5% of FIU on an annualised basis, surpassing the general provisioning level of around 1%. This uptick in credit losses adds further pressure on earnings for the current financial year.

Despite these headwinds, Earlypay reports that new originations remain solid and customer attrition has not materially impacted FIU. The Invoice Finance portfolio continues to show robust net revenue margins and credit performance, with an increasingly diversified customer base. However, growth in Invoice Finance FIU and customer utilisation has moderated in December after steady month-on-month increases earlier in FY26.

Looking Ahead

Earlypay’s Board has determined that maintaining quantitative earnings guidance at this stage would be inappropriate, opting instead to provide updated guidance following the release of half-year results in late February. CEO James Beeson emphasised that the company’s current investments are aimed at building a larger, more resilient, and more profitable business in the long term, acknowledging that the timeline for delivering these benefits is longer than shareholders might prefer.