‘Invoice finance’ is a method firms use to finance their account receivables. Small & medium-sized enterprises (SMEs) can use invoice finance to make their cash flow more predictable. Invoice factoring allows firms to sell their receivables to banks to improve their working capital. The first installment, typically provided within a day of application, covers about 80-90% of unpaid invoices’ value (Clydesdale Bank is known to fund up to 100% of your invoices). The company gets the remaining 10-20%, less the finance fee, once the customer pays their invoice in full. The bank makes money on the fees they take from that remaining 10-20%. After the deal, the company ends up with money to ease cash flow and the bank ends up with debts that they can collect to offset the money they have handed out to the company.

Invoices are verified before funding. Verifications prevents disputes or situations where clients take invoice discounting where there’s no need to the service.

Besides selling their invoices to banks, SMEs can now even sell their invoices to ‘Marketplace FinTechs’ who can connect SMEs with investors who want to buy invoices. On 2nd August this year, Barclays announced its landmark partnership with MarketInvoice, a leading FinTech in the invoice finance field. With the partnership, Barclays will reduce its own invoice financing operations and start referring its business customers to MarketInvoice in exchange for commissions. The pilot program for the partnership will soon take place in areas across the UK, including West Midlands, East Midlands, Hertfordshire, and North West London, with a full roll-out set to commence nationwide in 2019. Barclays plans to fully use MarketInvoice in the future as an invoice financing platform for all of its business customers. This deal signifies the symbiotic relationship between big old traditional banks and new, technology-driven FinTechs as the two sides grow closer instead of duking it out on the retail banking battlefield. Risk-averse high street banks like Barclays are willing to push some of their riskier businesses to hungry FinTechs like MarketInvoice who are willing to do anything to acquire new customers. With this partnership, Barclays and MarketInvoice will jointly be supporting upwards of 60 per cent of UK employment.

How is MarketInvoice actually differ from traditional banks in its provision of invoice financing? Here are some of those differences:

• Flexible plans: MarketInvoice provide both a pay-as-you-go options for smaller firms looking to finance a lump sum of invoices and a subscription plan, fit for those willing to commit to 6-12 months term for cost savings.
• Accessibility: MarketInvoice is willing to provide its service to any firm earning more than £100,000 a year in revenue, while bigger banks like Barclays might only be willing to fund firms earning more than £500,000.

MarketInvoice has always used investors’ money to fund the invoices of thousands of UK businesses, and indeed it has a lot of investors vying for its attention: Among them, Banco BNI Europa, a Portuguese digital bank, made £90m available for loans to MarketInvoice’s customers and Varengold Bank, a Hamburg-based lender, will put £45m on the platform. MarketInvoice draws in investors with promises of ~5% annualised returns and high degree of diversification (since SMEs’ income seems have low correlation with traditional investment products).

MarketInvoice’s online platform allows SMEs to upload, sync, and sell their invoices to investors, unlocking fast access to cash. MarketInvoice’s fees can eat up to 20-30% of investors’ profit, which are higher than other peer-to-peer platforms like Funding Circle, RateSetter, or Zopa; this is because of the high amount of short duration trades, which each carry a fixed processing cost despite MarketInvoice’s heavily automated process.

To understand more about what kind of businesses MarketInvoice is helping to grow, let’s take a look at two examples of real-life MarketInvoice customers:

• Health IQ: Health IQ is a technological healthcare consultancy serving huge clients like the NHS, which means they deal with payment terms of up to 100 days after they issue an invoice. They use MarketInvoice to bring cash forward for the research and development of new products that they can use to improve the services they provide to future customers.
• Skandel Boathouse: When Skandel Boathouse started winning contracts with big hotels, their turnover grew a hundredfold in just a few months. MarketInvoice provides them with an invoice finance facility to improve their delivery capabilities and take on new opportunities.

FinTechs are beating their chests loudly in the market, promising to overthrow the reign of big old banks, though most of them have not been through a financial crisis yet. MarketInvoice has funded £2.7 billion in invoices using investors’ money while promising its investors a good 4-6% returns annually. However, MarketInvoice has not made a single penny of profit since it was founded in 2010, and it made a net loss of £6 million in 2016, the latest year for which accounts are available. FinTechs’ resiliency will be put to the test in the next financial crisis, and MarketInvoice should figure out how to turn a profit before the eventual downturn of the market hits.

The Future of Invoice Finance?

Invoice financing is moving from banks to venture capitalists and ordinary investors like you and me (though to invest in MarketInvoice, you need at least £50,000). These FinTechs, though risky as they are, seem to be here to stay.

Invoice finance is a business ripe for innovation. MarketInvoice remains the only big FinTech player, and big banks desperately need more competition to force them to improve their services to the market.