Late payment can be nightmare for small and medium-sized firms. The annual late payment study by Sage shows nearly two-thirds of companies wait more than 60 days for payment and half wait more than 90 days. It’s causing one firm in ten to be unable to pay suppliers. That’s more than an annoyance. It’s a matter of keeping the business afloat.
The obvious solution to late payment is invoice discounting. Companies sell invoices for cash in hand, albeit slightly less than the full amount due. Small and medium-sized enterprises (SMEs) have been using invoice trading to smooth out cash flow for years. It’s a mainstream method of finance recognised by major accountancy bodies such as CIMA and ACCA.
Until recently there has been a downside to invoice finance and factoring – high charges. Banks that offer the service have expensive overheads to pay. They do so by passing costs on to customers. Furthermore, their charges are not always transparent. Companies are hit with reserves or unexpected processing and handling fees, pushing up the cost.
Fortunately, a new provider is set to lower the cost of invoice discounting. Investly is an online peer-to-peer model. Companies release the cash tied up in their invoices by selling them at a small discount to investors. The lower cost of running the digital platform means companies get superb rates.
Investly uses a reverse auction to determine the discount level. Investors bid on invoices, with each bid lowering the discount rate. After two days the auction ends and the company is given the amount in cash, minus the discount. The investors, who are prepared to wait for the invoice to be settled, get a return on their investment in the long run.
There are no extra or hidden charges with Investly. For example, if a business has an invoice of £10,000 for sale and the payment term is 30 days, a final sale price may be reached in the auction at £9,850. The seller or invoice owner will be forwarded the agreed £9,850, while the remaining £150 will go to the investors, with Investly getting a fee as a proportion of this total.
The platform has a proven pedigree having been offering its services in Estonia since 2014. It recently raised further investment from venture capital group Speedinvest, an Austrian-based venture capital fund, which invests in seed-stage startups around Europe. Stefan Klestil and his partners at Speedinvest are known for their successful investments in financial technology, such as London-based Curve and German success stories Wirecard and Number26.
Mr Klestil says: “Investly is making finance much more accessible and convenient, especially for smaller businesses that are suffering from lack of access to working capital. We know that we are able to help make Investly into a global success story.”
A key part of Investly’s appeal is the user experience. Ruth Chamberlain of Investly adds: “We have made it as simple as possible to use Investly. There is a quick three-step process for companies to register and just one fee. We give companies control and clarity over the entire invoice discounting process.”
There is a strong emphasis on customer support. Investly gives businesses guidance through phone, e-mail and web-chat. The founders are on-hand to provide personal guidance for companies who are thinking of signing up.
So many companies could benefit from having the flexibility to release cash from their invoices when they want to
High-net-worth individuals and sophisticated investors are currently signing up to participate on the Investly platform. They and users are protected by a credit-scoring system, which draws on multiple data sources to provide a risk profile for each borrower.
The goal now is to showcase Investly to SMEs who are either failing to make use of invoice discounting or rely on the old high street bank providers.
Ms Chamberlain of Investly concludes: “So many companies could benefit from having the flexibility to release cash from their invoices when they want to. A fashion label, which experiences sales spikes after a new collection, may need to smooth out cash flow. Or a company seeking to expand can obtain cash to invest in new equipment and staff. We can help those companies access working capital to accelerate their growth.”
For more information go to Investly.co