MarketInvoice recently met a small firm engaged in online advertising and social media marketing. The business was formed 2 years ago and had a steady base of small clients, generating revenues in the region of £100k per year. Recently, this company had managed to secure a tender process with a large FTSE 100 company currently looking at growing its use of online social media to engage with customers. While this is very exciting for the social media firm (the order has the potential to catapult the company into another league of scale and reputation), the owner’s attention rightly turned to how to finance such a large order.

The order is structured as follows: The FTSE 100 company starts a monthly social media and advertising campaign for a month with an estimated budget of £60,000. The small social media firm has to run the campaign and report results after the end of the campaign month. Once the campaign has been accepted by the FTSE 100 client, the social media firm can invoice for work completed.

Here’s the catch. The FTSE 100 client has payment terms of 120 days, while the social media firm needs to pay its suppliers within 30 days maximum! A classic working capital problem which results in the social media firm needing approximately 90 days of funding.

Sitting down to discuss this with the owner of the social media firm it was clear that typical whole turnover factoring would not work in this instance. All the major banks had turned down his application due to his short trading history and given that this potential new customer would represent the vast majority of his revenues going forward, traditional whole turnover independent factors were not enthusiastic about funding this. Besides, the owner of the social media firm did not like the idea of full factoring and outsourcing credit control, as this might damage his relationship with such an important client and make his small firm look financially unstable.

The owner thus turned to single invoice funding providers. There is a small but growing network of single invoice finance providers here in the UK. However, MarketInvoice was astounded to hear the rates that this business owner had been quoted. Given the firm needed funding for 90 days, the quote offered by one single invoice provider was a rate of 3% of the invoice per 30 days until 60 days, and then an incremental 1% per week until the invoice was paid. For the estimated 90 day term, the social media firm was looking at giving up 10% of the total invoice in fees to the factor!

On MarketInvoice, an transparent and competitive marketplace for funding, discount fees for trades closed over the past 3 months range from 1% – 2% of invoice face value per 30 days. Therefore for 90 days of funding, the social media firm would be looking at total costs in range of 3-6% of the invoice face value. This means that MarketInvoice is significantly cheaper than single invoice factoring. At times savings are greater than 50% what companies are quoted by single invoice factors. This is because MarketInvoice has a wide range of institutional buyers who compete with each other to fund small businesses. Given the profile of this FTSE 100 customer, there would be several interested buyers. Moreover, should the social media firm want to do more work with the FTSE 100 client then multiple buyers could buy different invoices, or share the funding requirements (pooled bidding). This is only achievable with the market-based system that MarketInvoice has introduced into working capital funding. One captive provider of finance would never be able to generate such low costs of funds.

And finally another advantage of the MarketInvoice approach is that small business owners do not need to give personal guarantees, which many factors still insist on.