Invoice trading is something all commercial finance brokers, and anyone else securing finance solutions for business, should have on their radars.

If you’ve never come across it before, it’s the process whereby companies — directly or via finance brokers such as yourselves — auction their invoices online to funders so as to gain quick access to money that would otherwise be tied up.

Essentially, invoice trading enables firms that are owed money for their work to see it before they’ve technically been paid by the client — thus solving any cash flow problems.

Meanwhile, the funders, of what is effectively short-term corporate debt, get a fee for stumping up the cash, which varies from auction to auction. Funders typically include institutional investors, family offices, asset-based lenders and high net worth individuals.

Any sector or size

Companies from any sector can sell their unpaid invoices on an invoice trading platform such as Platform Black— they’re almost always completely agnostic.

There will, of course, be other specific criteria that vary from platform to platform. At Platform Black, for example, we will only trade with companies turning over £1 million or more. We also have a minimum £10,000 invoice value per auction, although the average auction size on Platform Black in 2014 was comfortably above that: £48,000.

Crucially, most invoice trading platforms will allow invoices to be auctioned off individually or in bundles. The funders then bid to see who will offer the most competitive price to advance the seller the money. The most competitive bid gets to buy the invoice — and, once the money has been repaid by the seller — after 30, 60 or 90 days — their fee for doing so.

Introducer fees

For introducing a client to Platform Black, finance brokers, as well as gaining the goodwill that comes with facilitating competitively priced working capital for their clients, will receive 20 per cent of Platform Black's transaction fee by way of commission.

The exact transaction fee will depend on the duration of the advance:
•    1% of the invoice value for a 30 day credit period, or £200 minimum + VAT
•    2% of the invoice value for a 60 day credit period, or £400 minimum + VAT
•    3% of the invoice value for a 90 day credit period, or £600 minimum + VAT

By way of example, on a £150,000 invoice with a 90-day credit period, Platform Black would charge a transaction fee of 3 per cent, or £4500. 20 per cent of this would put £900 in the pocket of the introducer.

Upon completion of the first trade, introducers will also receive a sign up commission of £200. In the example, above, for example, the introducer would receive £1100.

Versus factoring

Invoice trading differs from traditional invoice discounting and factoring, which are generally provided under long-term, exclusive agreements with a single bank or specialist finance provider.

These agreements usually oblige the seller to sell their entire invoice ledger. Again, this isn’t the case with invoice trading platforms where companies can sell just individual or specific bundles of invoices.

Ultimately, think of invoice trading as a ‘Pay-As-You-Go’ service that allows companies to take more control of their cashflow by auctioning off some or all of their outstanding invoices, whenever they want — for only a small transaction fee.

In fact, lots of companies use it alongside other funding facilities, as it complements many of them very well.

Case Study — Aspire Contracting

Middlesbrough-based Aspire Contracting focuses on large volume social housing refurbishment. “Our role is to improve the thermal insulation of poorly constructed properties, basically by wrapping streets of houses in thick polystyrene,” says Keith McDougall, a Director of Aspire Contracting. “So, not only does the occupier end up with a nicer looking property – but their energy bills are vastly reduced as well.”

The majority of the work that Aspire Contracting undertakes involves large-scale social housing projects and the company finds itself in the position of having to purchase the materials upfront and then wait two months or more before payment actually comes through from the customer.

“It takes three weeks to complete each property,” Keith explains. “But we can’t put a valuation into our client until we finish a property and we can only do that at the end of each month. In the meantime, our suppliers want paying a month or so earlier than that. This creates an immediate cashflow issue for us.”

Since their launch in 2013, Aspire Contracting have put a considerable volume of invoices through Platform Black, providing them with all-important cashflow. Keith especially likes the fact that they are not tied into any long-term contract as well as the good rates that come through the bidding process. He says:

“It would have been difficult to set the business up and get to this stage without the assistance and support of Platform Black.”

By: Caroline Langron, Managing Director, Platform Black