Utilising the principles of peer to peer lending, invoice trading allows businesses to sell individual invoices via online platforms in order to improve cash flow. Essentially, it’s a quick way of connecting businesses with cashflow issues with investors seeking a short-term return via online auction sites. Invoice trading is one of several invoice finance solutions which have appeared as a part of Fintech disruption of traditional banking models, and is sometimes referred to as ‘auction-based invoice finance.’
Invoice Trading Platforms (P2P invoice finance)
These are websites set up to facilitate the trading of either invoices of supply chain agreements. They bring together SME’s in need of working capital with investors seeking a profitable return. When conditions match it makes for a beneficial scenario for both parties.
What’s the typical Invoice Trading Process?
- A business (the majority will be SME’s) uploads an invoice into an invoice trading platform and sets their terms
- Investors (usually a mix of private and corporate) use the platform to browse invoices. They are provided with relevant background information on the seller, any details on the transaction itself, plus copies of the original invoice.
What are the Typical Costs of Invoice Trading?
These vary widely depending on the size of the invoice, the terms, and the nature of the industry concerned. Although borrowers are promised ‘up to 90% of each invoice’ by many providers, these terms are rarely achieved. More typically, a borrower might receive around 75% of their invoice value at 2-3% interest rates, plus a transaction fee charged per funded amount. These typically range from 0.5-1%, depending on the credit period.