One of Australia’s first peer-to-peer invoice financing deals has seen a Tasmanian education provider get the quick $60,000 it needed, three minutes after it posted an invoice for slightly more than that on a new platform called InvoiceBid.
In March, a Hobart waterfront lease became available that Chris Billing knew would be a perfect new campus for The Foundry, his business that partners with accredited schools to bring design and business courses to young Tasmanians.
The entrepreneur’s problem, familiar to most SMEs,was a lack of the cash to pay the rental deposit and start a new fit-out.
The Foundry is not paid for its course-hosting services until four months after it has provided them.
But on April 5, Mr Billing did have an invoice to send.
‘It was for $63,000, to one of our partners [at the existing Launceston campus] who is absolutely rock-solid in paying on time,” he said.
A former property developer, Mr Billing had reluctantly experienced the “murky” world of second-tier lending before, so was cautious when he began a Google trawl for invoice financiers in the days before the invoice was generated.
“A lot of them have websites full of stock images and look a bit suss.”
InvoiceBid’s homepage is not without some picture library assistance itself, but Mr Billing called the phone number anyway.
“After one conversation with [co-founder Charlotte Petris], I knew this was legit, they weren’t mucking around,” he said.
Due diligence on the sellers of invoices through InvoiceBid typically took about a week, said Ms Petris, a former corporate financier for companies such a Bauer Media, who has co-founded the platform with her husband, Andrew; a former hedge fund-of-funds manager.
The pair speak to and verify a seller’s debtors and customers, scrutinise data from its cloud accounting platform (in The Foundry’s case they spoke to the bookkeeper too), run background checks on the owners and confirm what each new funding request will be used for.
“Once we’d approved The Foundry, their bookkeeper uploaded the invoice from their Xero to InvoiceBid, and within three minutes it had been bought by one of our investors,” Ms Petris said.
The Foundry’s $63,000 invoice, due to be paid in 30 days, was listed to “buy now” on InvoiceBid for an amount Mr Billing said was “about 3 per cent less than that” (there’s also an auction mechanism for creditors in less of a hurry).
The spread included InvoiceBid’s fee – which is a low as 0.7 per cent for high, six figure transactions, but 1 percent for this one – as well as a small amount held back for insurance.
InvoiceBid also registered the invoice on the Personal Property Security Register on behalf of the investor, but otherwise required no security from its invoice sellers.
The investors buying the right to be paid invoices were at this stage all individual “sophisticated investors” from the couple’s network, but Andrew Petris was working on getting institutions to invest too. Merchant banks were funding as many as 70 per cent of the “peer-to-peer” retail and business loan on major platforms in the US and UK, said consultant Martin North, of Digital Finance Analytics.
But Mr Petris said demand from sophisticated individual investors was alone sufficient to make InvoiceBid viable, with current low-term deposit rates from banks a factor.
Originally published by The AFR