Published on 30 April 2015, in BRW
Chris Billing of The Foundry at Launceston: short-term financing is hard-to-find and expensive for growth businesses like his, however peer-to-peer invoice financing may prove a solution.
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.
“A restaurant had just vacated it, and I knew that once it was off the market it would probably be gone for another ten years,” Billing says.
The entrepreneur’s problem, familiar to most SMEs, was a lack of the cash on hand required to pay the rental deposit and start a new fit-out. The Foundry doesn’t get paid for its course-hosting services until four months after it’s provided them. However come April 5, 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 says. “We’re lucky in that our sector links back to government funding so it’s stable and repetitious.”
A former property developer, Billing had reluctantly experienced the “murky” world of second-tier lending before, so he 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,” Billing says.
InvoiceBid’s homepage is not without some picture library assistance itself, but 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 says.
Due diligence on the sellers of invoices through InvoiceBid typically takes about a week, says Petris, a former corporate financier for the likes of 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,” Petris says.
The Foundry’s $63,000 invoice, due to be paid in 30 days, was listed to ‘buy now’ on InvoiceBid for an amount Billing says 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 as low as 0.7 per cent for high six-figure transactions but 1 per cent for this one – as well as a small amount held back for insurance, which Billing says will be payable to The Foundry once the debtor pays the investor on-time.
InvoiceBid also registered the invoice on the Personal Property Securities Register on behalf of the investor, but otherwise requires no security from its invoice sellers.
The investors buying the right to be paid invoices are at this stage all individual ‘sophisticated investors’ from the couple’s network, however Andrew Petris is working on getting institutions to invest too. Merchant banks are funding as many as 70 per cent of the ‘peer-to-peer’ retail and business loans on major platforms in the US and UK, says consultant Martin North of Digital Finance Analytics.
However Petris says demand from sophisticated individual investors is alone sufficient to make InvoiceBid viable, with current low term deposit rates from banks a factor. An individual like Mike Israel has been able to command rates between 7 and 9 per cent annum funding hundreds of personal loans through Packer-backed peer-to-peer platform SocietyOne, while the best bank or credit union rates are barely above 3 per cent.
InvoiceBid is the only known peer-to-peer invoice financing platform in Australia to date, but Billing is a happy guinea pig.
“The banks have mostly pulled out of invoice financing, my credit union can’t do it, and there’s not much venture capital action in Tassie so it’s good to have funding options when you’re growing quickly,” he says.
“This was quick, easy and in terms of short-term finance, cheap,” he says. “Now we’re in InvoiceBid’s system we’ll be able to do it again at the drop of a hat.”
Petris claims internal testing has shown InvoiceBid to be a cheaper source of finance than all institutional invoice lenders, but can reduce rates “by two-thirds” for businesses that don’t wish to commit to an ongoing invoice financing facility.