G20 Funding the Future Report – Case study: Providing working capital against invoices
Ernst & Young
PUBLISHED JUNE 2012

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MarketInvoice is an online marketplace that allows small and medium-sized companies to raise capital by auctioning their invoices to investors. To date, it has advanced £13m to more than 85 businesses, and it is growing quickly. In March 2012, it issued £3.5m, despite only having been set up in February 2011.

The firm’s aim is to create a marketplace for what is traditionally a captive relationship between the factoring company and the client. “We wanted to make this process more price-transparent, competitive and flexible,” says founder Anil Stocker.

Companies using the MarketInvoice platform choose the invoices they wish to auction, the term, the minimum advance they require, and the maximum fees they are willing to pay. Buyers then bid on invoices. Sellers pay a monthly discount fee of between 0.5% and 2.5% of the invoice face value.

MarketInvoice takes a fee of around 0.5% from both sides of the transaction but does not charge any arrangement fees, minimum service fees, late payment fees, funds fees or extension fees, and there is no contractual lock-in. Stocker believes that its total costs compare favorably with traditional factoring, which can involve a 25% to 35% effective interest rate when all costs are included.

There are other advantages as well. After companies have set up an account, they can raise working capital in just a few days or even hours — effectively the time it takes for an auction to complete. Companies are not locked in long-term contracts. Also, company directors do not need to provide personal guarantees, unlike with invoice discounting and factoring.

All this gives small businesses access to a new pool of funds. In turn, institutional investors can buy into a new asset class, with the potential for yields that compare very favorably with blue-chip corporate bonds.