invoice trading

Time to ask where's the money to back our exporters - invoice trading solves the cashflow mismatch

 

Another week, another story about transitioning from the mining boom. Australian service businesses have a great deal to offer overseas companies. We see it every day. But without the finance to grow, how can you do it? Has anyone asked that question in Canberra?

Our broken Basel 2-3-4 system of regulatory capital makes our banks focus on residential mortgages, not lending to businesses. Time to change that. Now!

"Sheep, iron mine and Sydney Opera House," writes Yongyu Ma, a student, on the online forum Quora in response to the question "What do Chinese people think of Australia?"

Prime Minister Malcolm Turnbull this week headed a 1000-strong delegation of business people to China in an attempt to convince them we have more to offer.

Events and banquets were held across 12 Chinese cities, with Austrade officials acting as cupids, of sorts, setting up speed dating sessions for Australian businesses to tout the full diversity of our economic wares to Chinese buyers.

Australia can be as nimble, agile, innovative and excited as we like, but just because we’re good at providing services, doesn’t mean we’ll necessarily sell lots of them.



 

Quick tips to boost your business’ credit rating and some ideas on how invoice trading solves the cashflow mismatch

A business with a poor credit rating can find it difficult to access loans and other financial services. That’s why we have analysed some credit agency models and found a few simple ways to boost your score, and avoid unnecessary exclusion.

Be careful about shopping around for credit

Business owners are generally not aware that shopping around for credit can have quite a negative effect on your credit score. Try to get good advice before applying for credit. Read this article for more information.

Improve the way you file with ASIC and prepare accounts

  1. File your annual return on time – being prompt won’t necessarily boost your rating, but being late can cause problems.

  2. Prepare your accounts on time, Use accountancy software like Xero or MYOB to keep everything in check, and work with your accountant to prepare everything you need in good time. Keeping everything on-line makes this much easier.

  3. Use a reputable accountant. This doesn’t mean you need to go to one of the ‘big 4′ professional services firms like. A well-practiced local accountant who is an ACA or CPA is just as good. Annual accounts from a trustworthy source will give your business real legitimacy and boost your credit rating.

Avoid complicated corporate structures

Keeping your business’ structure simple (e.g. a proprietary limited company) makes it easier for lenders to understand and assess – instantly improving your credit rating. Too many subsidiaries or an unclear ownership structure are warning signs to potential lenders. More transparency and a clear corporate framework will give you a better credit score.

Stability at the top

If directors and board members are seen to be chopping and changing, it’s an instant sign for those looking in that trouble is brewing within a business. Try to avoid this instability as best as you can, as it undermines the rest of your business. Pick your partners for the long run and stay transparent on who controls the company. A strong leadership instills confidence, and will improve your credit rating.

Keep your net assets positive, separate business from lifestyle expenses

Make sure your total assets always outstrips your total liabilities. Some lenders will outright refuse to lend to any business that has negative net assets. This might affect those owners who use their controlled companies to pay for their lifestyle expenses. Sole traders or entrepreneurs often don’t separate their personal expenses from their company expenses. Whilst this pattern is quite typical for SMEs, such businesses will show very low or even negative net assets, with the slightest of operating margins. It’s up to you how you run your business, but beware that this behaviour will have an adverse impact on your credit score and your ability to access credit.

Keep on top of your cash flow

It’s vital to maintain a healthy balance between your current assets, payables and outstanding liabilities. Poor management of working capital can leave your business heavily exposed to its incoming payments. Don’t be afraid to negotiate credit terms with your suppliers and your customers. You can also use invoice finance to improve your cash position – the most quick and flexible option is InvoiceX of course.

It’s also important to check who you’re dealing with – do they pay on time, or do they pay late? Ask other business owners who have dealt with your prospective customer about their record. Credit check your customers, and ask to be paid promptly. Don’t accept unfair or unusually long payment terms, be prepared to walk away if these are forced upon you – it’s no good to see your business fail because of tight cash flow when you have a full order book.

Court Judgements

Court judgements are registered against your business when your creditor has gone to court to force you to pay them and the judge has ruled in their favour. They are a fast-track to a poor credit rating – either pay them off or fight them vigorously, don’t let them fester. The more judgements you have the lower your credit score. Less than one percent of businesses in Australia have outstanding court judgements, so those that do are in a tiny minority that will suffer. Deal with them as quickly as you can.

Security interests and charges? These actually DON’T affect your credit rating.

Your credit score is impacted by the amount of debt you carry as a business, but not by what kind of security you have provided to your creditors. For example, granting a General Security Deed (contract by which you pledge all of your business assets to your creditor) doesn’t in itself impact your credit score, it just makes it necessary for any new creditor to agree with your existing creditor on how your assets will be divided up if your business should fail. If a lender wants to provide you with credit, but has to get consent from your existing creditor, don’t be afraid to ask for it. Banks in Australia are expected to ensure that the consent is provided in reasonable time and even if consent is refused, they can’t change the terms of your current lending agreement. So asking for consent won’t damage your credit rating, or your ability to get credit in the future.

Most of the time when a business is refused credit (or quoted an expensive price) it’s not the result of specific information that looks bad, it’s actually the result of a lack of information. By sharing more information about your business online, you’ll most likely find yourself a much more attractive prospective borrower.

How invoice trading provides badly needed growth capital for ambitious Australian businesses

No doubt you’ve had other busy week. We thought that you would appreciate a quick update on the fundamental issues and developments in the market for business credit. Please click on the links below to read more.

According to a recent Morgan Stanley report, the market for alternative finance in Australia is on track to grow to over $95 billion and is changing at a rapid pace. Our confidential, flexible working capital product is unique in Australia and we are seeing very strong demand from growing businesses.

 
 
 
 
 

KPMG: invoice trading is the fastest growing alternative finance model in Asia-Pacific, ex-China

This report is based on a survey of over 500 alternative finance platforms in 17 Asia Pacific countries and regions, capturing an estimated 70 percent of the visible market. As the first comprehensive studyof the Asia-Pacific online alternative finance market, this research contributes to the growing body of data supporting the region's potential.

Why invoice trading is so different to factoring and so much better

In Australia many ambitious businesses can’t reach their potential because banks won’t fund them without real estate backing. Where do you go if you have no more equity in your house?

ATO tax debt continues to rise as SMEs cashflow pressures mount

The amount of tax that is overdue continues to rise. Over $35bn is in arrears and small-medium sized businesses owe most of it.
In 2014–15, the ATO granted over 800,000 payment plans.

 

 

The Great Conspiracy: what is the real rate of interest on a short term loan?

When comparing offers of finance as a business owner, it is very difficult to understand the true cost of the product. Unlike consumer finance, there is no requirement to disclose comparable rates and few know how to calculate one.

Our approach to the lack of regulation in SME finance

As is the case overseas, invoice finance in Australia falls under asset based financing, which is not currently an activity regulated by ASIC (Class Order [CO 04/239]). We would welcome regulation but you cannot choose to be regulated, as our regulatory advisers have pointed out.

Small business credit - what happened to the Phase 2 credit protection reforms agreed at COAG in 2008?

In 2008, the Council of Australian Governments (COAG) agreed to a two phase reform process for the regulation of credit and that in Phase Two the Commonwealth would consider the need to change the definition of regulated credit, and to address practices and forms of contracts that were not subject to the Credit Act.

Four things the innovative accountant should know about alternative finance

Over 300 attendees packed Sydney's Doltone House for the inaugural AltFi Australasian Summit, to hear from a range of local and international speakers about the future of this exciting new space.

If you are interested in finding out more about alternative finance and how it is helping businesses grow, please get in touch. It’s a subject that we love to talk about!

Have a great weekend!

 

CONTACT US TODAY

 
W: www.invoicex.com.au
E: info@invoicex.com.au
General Enquiries: 1300 IX GROWTH

Our approach to the lack of regulation in SME finance

InvoiceX has been built by experienced founders who are passionate about providing a better deal for ambitious businesses and investors.

As is the case overseas, invoice finance in Australia falls under asset based financing, which is not currently an activity regulated by ASIC (Class Order [CO 04/239]). We would welcome regulation but you cannot choose to be regulated, as our regulatory advisers have pointed out.

More broadly, business finance is Australia is hardly regulated with very high level ASIC protections. A January 2013 government review confirmed this and recommended the following course:

"Targeted regulation would be introduced through a negative licensing scheme, improved disclosure requirements, universal access to external dispute resolution (EDR) and the introduction of a remedy for asset-stripping conduct."

InvoiceX does not invest any capital into invoices itself or on behalf of any third parties. Unusually, our founders' investment vehicles invest in every trade alongside our other investors on the same terms. InvoiceX does not take client deposits or give any investment advice. InvoiceX only accepts Sophisticated Investors on its platform.

InvoiceX is the first and only SME finance provider of any type in Australia to reveal its loan book in full. We will continue to do this as we develop. We aim to provide the best terms in Australia for invoice finance.

Finance has been offered to SMEs on unfair terms for too long. Banks over-collateralise loans based on real estate, reduce or remove overdraft limits with little or no notice. Some non-bank lenders lock SMEs into onerous contracts, especially in invoice finance but also quite a number of emerging online lenders that promise quick decisions at very high, unstated interest rates with penal early repayment terms.

This needs to change. We do not lock our customers into contracts. Businesses can quickly raise finance on just one invoice with no set-up fees on fair and transparent terms and are under no obligation to continue using InvoiceX afterwards. And it is a confidential service which does not involve the SME's customer.

Voluntarily at the outset, we set up a not-for-profit Special Purpose Vehicle to handle all transactions between Buyers (investors) and Sellers (SMEs) on our platform. The day-to-day management of this SPV in terms of settling trades and real-time accounting and reconciliations is outsourced to BDO, a Top 5 international accounting firm. Furthermore, we require regular internal auditing of the SPV as an additional layer of protection. All of this means that if InvoiceX ran into any difficulties, there is a robust system in place to handle the winding down of the platform or effect a transfer of ownership.

We voluntarily pay to be a member of the Credit and Investments Ombudsman, a free, independent and impartial external dispute resolution (EDR) service for our customers. It is approved by ASIC with over 20,000 financial services members in Australia.

We voluntarily maintain professional indemnity insurance although we do not provide financial advice.

We are supporters of significant efforts being made to create the Australian equivalent of the UK Peer-to-Peer Finance Association. This body would require members to operate by a strict set of rules in order to promote high standards of conduct and consumer protection.

We are members of Fintech Australia, a national not-for-profit organisation with a vision to make Australia the number one market for FinTech in Asia. Its key objectives are to support the Australian FinTech community, build awareness and trust in FinTech startups and to advocate for better policy on behalf of our members.

Finally, our two founders have worked in regulated industries throughout their 25-30 year careers, holding significant influence functions. We firmly believe in transparency, fairness and high standards of conduct.

Please share this with people if you think this is helpful.

KPMG: invoice trading is the fastest growing alternative finance model in Asia-Pacific, ex-China

KPMG: invoice trading is the fastest growing alternative finance model in Asia-Pacific, ex-China

This report is based on a survey of over 500 alternative finance platforms in 17 Asia Pacific countries and regions, capturing an estimated 70 percent of the visible market. As the first comprehensive study of the Asia-Pacific online alternative finance market, this research contributes to the growing body of data supporting the region’s potential.

16 March 2016

Invoice trading is booming in Australia, according to a report by KMPG, University of Sydney, Cambridge University and Tsinghua Graduate School

As reported in The Australian today, in the first Asia-Pacific report surveying Alternative Finance published this week, it is notable that, relative to consumer lending, alternative business finance and, in particular invoice trading, has developed much more strongly in Australia than in the US and the UK.

We are quoted in the article as noting that this underlines the exceptionally under-served nature of the Australian small business lending market, which at the recent Altfi Summit in Sydney was estimated to be seeking an additional $95bn of finance.

This trend is also reflected in RBA lending statistics which show property loans since the GFC have grown by $538.7bn (+54%) while business lending has increased by just $72.5bn (+9%).

(RBA Statistics: Business Credit Seasonally Adjusted: $765.5bn in December 2008 to $838.0bn; Housing Credit (Owner Occupied and Investor) $992.9bn to $1,531.6bn)

KPMG’s endorsement of invoice trading will go a long way, but regulation is what really builds trust in a sector. The truth is, unlike consumer lending, a sandbox won’t accelerate the development of innovative new business finance products – but increased involvement from and endorsement by the gamekeeper will accelerate business adoption.

The government’s most pressing need now is to accelerate the adoption of alternative finance by SMEs, which would provide a kick-start to our economic growth. Introducing disclosure standards as to the cost of finance and terms and conditions of finance – similar to comparison rates for mortgages – is a simple step to take, but would dramatically change the reputation of the sector.

It’s clear that the regulatory environment needs a 21st century approach, and the government seems to be aware of this, but we are all waiting to see words turn into action. We’re in a similar position to when the SMSF market first emerged – the regulators had to rapidly come up with a new approach then, and the need is even more pressing now with the increased speed of the development of new business finance products.

As Paul Keating said: “When we laid the foundations for the current superannuation system in the 1991 Budget, I never expected Self Managed Super Funds (SMSFs) to become the largest segment of super. They were almost an afterthought added to the legislation as a replacement for defined benefit schemes.” 

Time to get wriggle on!

  

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Why invoice trading is so different to factoring and so much better

CONFIDENTIAL FLEXIBILITY

We view long dated invoices as an asset you can leverage to provide cashflow to grow your business

In Australia many ambitious businesses can’t reach their potential because banks won’t fund them without real estate backing. Where do you go if you have no more equity in your house?

Many of Australia's most promising small to medium sized companies have large slow-paying customers: Government entities, ASX listed companies, large multi-national corporations, educational and healthcare institutions, etc.  You know they are going to pay: it’s just going to take a while, 45, 60, 90 days…

InvoiceX has the only solution of its kind in Australia. Invoice trading, or single invoice finance as its sometimes described, has now caught up with the new sharing economy, which has introduced the likes of Uber and AirBnB. We match sophisticated investor funds with growing Australian companies on the best terms possible, ensuring the best possible deal for both parties.    

Uniquely, the funding is confidential and only needs to be used on an as-needed basis. Unlike traditional factoring, the funding is totally undisclosed, the terms are fair and transparent, it’s all done online at speeds that would embarrass your bank.

You are in control to trade invoices when you want, on your terms, single invoices or bundles of invoices.

For ambitious businesses this is a powerful tool, which turbo-charges growth.

Our track record speaks for itself. We have many happy customers Australia-wide who swear by our revolutionary model. Confidential invoice trading works.

SIMPLY, IT’S THE SMART WAY TO GROW. 

Why does confidential invoice trading make sense?

Through our revolutionary Match Maker Trading Platform™, we offer our customers valuable benefits that are not available with other financing options.

BANK OVERDRAFTS DON'T FINANCE REVENUE GROWTH - THEY LOOK BACKWARDS NOT FORWARDS AND YOU NEED REAL ESTATE

1. Overdraft limits are typically set based on your fixed assets including personal real estate

2. For many firms the biggest balance sheet assets are the amounts due from their customers (invoices) - these are not fixed assets, so you can’t raise an overdraft against them

3. Increasing your overdraft is often mind-blowingly difficult requiring lengthy negotiations with your bank with accountant's reports

4. With a tight credit environment banks have been reducing overdraft facilities to businesses, especially small-medium sized businesses

5. Overdrafts often come with high and unexpected fees, which you only discover when you need the overdraft most

TRADITIONAL FACTORING AND INVOICE FINANCE PRODUCTS LOCK BUSINESSES INTO A CAPTIVE RELATIONSHIP

1. All of your debtors: customers must enter into whole turnover invoice financing arrangements, not single invoice finance, to avoid penal rates

2. Lack of confidentiality: the finance provider takes control of all of your customer collections

2. Expensive: ongoing monthly minimum services fees, high arrangement fees, unclear terms, lower availability of finance than advertised due to concentration limits and lack of co-operation by debtors

3. Unfair contracts: traditional debtor finance contracts usually involve contractual lock-ins with long notice periods which in many cases make it exceptionally difficult for the customer to terminate the contract 

4. Unreliable: credit lines can reduce with no notice at the whim of the funding provider

6. Clunky: often lacking in innovation, traditional products tend to be inflexible to your needs

INVOICEX BRIDGES THE GAP

1. Sell invoices confidentially as often or as little as you want, only paying transparent transaction fees on each invoice sold

2. Sell invoices in minutes to sophisticated investors using our Match Maker Trading Platform™: they buy your invoices and we ensure that funding is advanced to you next day

3. You deal with customer collections, not us

4. Obtain best pricing for the invoices that slow your business down, rather than unilaterally across all your debtor book

5. Access funds almost no matter what industry you are in

6. No need for blanket security charges over all company assets - raise cash, not debt

Why is invoice trading so different from conventional debtor finance?

We enjoyed reading a very useful article on Altfi recently which highlighted the leading invoice finance platforms in Australia.

Some important differences were highlighted:

First and foremost, it’s crucial to state the difference between invoice financing and invoice factoring, as they aren’t the same thing at all.

The former refers to borrowing money against businesses’ outstanding accounts receivables. An example helps to clarify the point. A lender gives entrepreneurs cash today in relation to the value of the company’s accounts receivables – money owed to the firm, which clients will pay in the future (hopefully). Once the clients pay up, entrepreneurs then repay the lender the amount loaned plus fees and interest.

The latter is a bit different. Indeed, in this case the lender “buys” the accounts receivables entrepreneurs are owed and takes over collecting from the clients. With invoice factoring, the lender will pay the business owner a percentage of the total outstanding invoice amount, then takes responsibility for collecting the full amount. Once they collect the full amount, they’ll advance entrepreneurs the difference, keeping a percentage for their services.

The main difference between these two forms of financing is obvious. In the first case, the business owner is still responsible for collecting outstanding money owed by his/her clients. In the second case, clients will deal with the factoring company to make their payment, not the business owner.

This usefully sets out some key foundations based on conventional debtor finance. During the early 1990s, 'invoice financing' or 'discounting' as described above developed into a major asset finance product for larger companies. In recent years, banks have steadily withdrawn from this segment due to the inherent risks and operational complexities.

Invoice finance is now seeing the development of a next generation product: confidential invoice trading. Over $2 billion of finance has been provided in this form in the UK alone, having started only 5 years ago.

This is a revolutionary new way of doing invoice finance, as pioneered by Marketinvoice in the UK since 2011 and adapted by InvoiceX for the Australian market since 2014. 

Confidential invoice trading opens up a broad market of high quality, growing businesses who are attracted to raising flexible growth capital confidentially on attractive terms. These companies are not attracted to factoring or invoice discounting.

  • Unlike factoring, our invoice trading solution is confidential. We are the only platform that offers this in Australia. We do not contact or chase the debtor for payment.
     
  • Unlike invoice discounting, our investors own the traded invoice. This is a much better place to be from a credit risk perspective. Our investors are not materially exposed to insolvency risk from the seller. Therefore, we can offer much better terms to SMEs and much larger facilities.

We are very excited as this form of finance opens up so many growth opportunities for many of Australia's most promising companies.

SME finance in Australia is changing for the better thanks to P2P/marketplace lending

Oz P2P Lender Releases Loan Book

By Guglielmo de Stefano on 2nd February 2016
 

Invoice trading platform InvoiceX publishes its loan book as part of its plan to boost transparency.

Australian online invoice trading platform InvoiceX today announced the publication of its loan book, containing tons of data on more than $6.5 million of invoice trades from November 20th 2014 – when the platform launched – to 31 December 2015. According to the data, the company is on track to trade over $50 million worth of invoices in 2016.

Founded by Dermot Crean and Steve Yannarakis, the company is strongly placed to help small and medium enterprises (regardless of their business sector) to deal with working capital pressures. Its primary product – the Match Maker Trading Platform – rapidly matches investors with businesses, optimising the deal for both parties. InvoiceX assures the total absence of set-up fees and a straightforward application process. The company aims to provide a cash advance – up to 85% of the Face Value of an invoice – within 24 hours.

Dermot Crean, co-founder and director of InvoiceX, commented:

“Greater transparency is key to taking P2P lending mainstream, both for businesses and consumer loans. It is our hope that release of this data will prompt other P2P lenders to take the same action. We want to ensure that all business owners in Australia who are eager to grow have access to transparent and fair finance which puts the rights of borrowers at the centre of the lending process.”

Since inception, InvoiceX has facilitated 201 trades for SMEs with an average trade face value of $33,098, an average discount fee of 1.2 per cent per calendar month and an average settlement period of 35 days. The platform is keen on highlighting the differences between its business model and a normal factoring provider. Traditional factoring involves long lock-in periods, much higher costs and the losing of control of sales ledgers and collections. Conversely, InvoiceX’s product is totally confidential, with no lock-ins and a good deal of flexibility.

According to Dermot, the release of this data is indicative of a maturing P2P lending market in Australia. He said:

“The public release of this lending data will allow businesses to make easy comparisons between P2P lenders, and also directly with traditional finance options such as term loans and mortgages. […] Greater transparency is key to taking P2P lending mainstream, both for businesses and consumer loans. It is our hope that release of this data will prompt other P2P lenders to take the same action.”

It’s widely acknowledged that transparency is a key pillar of the Alternative Finance Space – essential to ensuring the sustainable growth of the asset class and to demonstrating that alternative finance platforms are behaving responsibly.

InvoiceX claims to be the first P2P Australasian platform to publish its loan book. “It's great to be the first to do this ever in Australian SME finance,” said Dermot. RateSetter Australia, following in the footsteps of its UK-based progenitor, uploaded its complete loan book online last October – although this resource is updated on a quarterly basis. On a global scale, many players have already disclosed their data, including the likes of ZopaFunding CircleRateSetter and MarketInvoice in the UK.

Aside from increasing the public’s opinion of the sector, data is critical also from a practical perspective, allowing for the construction of indices, such as the The Liberum AltFi Returns Index (LARI), which will likely come to form an essential component in the maturation of the sector.

AltFi Data today added an Australasian section to its Resources page, providing a link to the InvoiceX loan book, which is accessible here. We suspect that InvoiceX may have company in the Australasian section before long.

An Australian First : the first SME loan book ever to be disclosed

In an industry first, InvoiceX has today published its full loan book as part of its push for greater transparency in Australian SME finance.

The loan book contains anonymised data on more than $6.5 million of invoice trades from the platform’s launch on 20 November 2014 to 31 December 2015.

During this period, InvoiceX facilitated 201 trades for SMEs with an average trade face value of $33,098, weighted average discount fee of 1.17% per calendar month and average settlement period of 35 days. Larger trade values of close to $200,000 in the last three months of 2015 saw average trade face value increase to $44,133.

We want to ensure that all business owners in Australia who are eager to grow have access to transparent and fair finance which puts the rights of borrowers at the centre of the lending process.

We have set ourselves ambitious targets to help Australian businesses grow.  Our institutional-grade platform is ready to service the needs of our customers on a low cost basis. As a result, we are confident that we can provide the best deal for growth capital in Australia.

The data is available publicly for anyone to download and will be updated regularly.

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