As this is London Fintech Podcast episode thirty and as it’s a big round number I am especially delighted to be joined by one of the giants of the London Fintech scene Anil Stocker, CEO and co-founder of MarketInvoice. Not only do we do a deep-dive into invoice financing but Anil also talks about MarketInvoice’s exciting plans for the future.
I cannot think of one sector of Fintech where there has been adequate competition where the leading player has left their competitors so far behind in their wake as MarketInvoice has in Invoice Finance.
I have long been a fan of MarketInvoice, so much so that a year ago when a friend was discussing with me his son’s business expansion and the need for working capital when dealing with major buyers I had no hesitation in saying “there is one name he should speak to”. A year later they are now a case study on MarketInvoice’s website, their business is booming and I know by direct experience that far from being abstract, good FS, good Fintech can act as enabler for people to grow businesses in the real world.
And what’s better than that?
Businesses use MarketInvoice to selectively sell their invoices to a network of global investors giving businesses immediate access to funds otherwise tied up for between 30 to 120 days. There are no contracts, hidden fees or personal guarantees. New clients can sign up in a couple of days and sell an invoice and draw down funds on the same day.
They have already helped hundreds of businesses overcome the lengthy payment terms of their large customers. Over £420m has been raised through the platform, with businesses using the funds to hire more staff, launch new products and pay their suppliers
Topics discussed include:
– Anil’s background (including how long ago he met his co-founders) and the genesis of his interest in invoices and Fintech
– an interesting conversation around the transition from university to business; the nature of that; how well it works in differing countries and the different types of skill-set required; the stark choice between becoming part of large machines and the entrepreneurial life
– the importance and value to almost all entrepreneurs of starting their careers in a small growing entrepreneurial company and then using this experience as a springboard to their own ventures
– the important lessons about Fintech one learns from working in FS
– in the UK at any point of time there is a total of outstanding invoices of £20bn . Most businesses aren’t fully educated about how to use this as a basis for financing. Only 5% of businesses use invoice financing which is a huge opportunity going missing [and often inappropriately substituted by raising debt or equity]
– MarketInvoice’s goals are (i) to make their process fully online – no meetings required, no physical paper; (ii) to be super-transparent (cf existing marketplace); (iii) flexible, on demand (banks lock their clients in); (iv) better data, better risk decisions to enable MarketInvoice to offer better terms
– typically banks advance 60-70% against the SME’s entire ledger; with MarketInvoice you can select the invoices and get up to 85-90% of the value up-front, the total fee being around 1-3%; 15days -120days; average 50days
– a case study of the impact of invoice finance on their client Rock Jaw who make headphones so good that they are sold in Japan
– the more clients work with MarketInvoice the better terms they get as MarketInvoice gets to understand their track-record – so rather than clients being locked-in they are, vice versa. incentivised to stay
– they a have a prestigious lender/funder list – HNWI’s, Institutions, Pension Funds, Government (via British Business Bank), Local Authorities (eg Manchester City council)
– recourse finance vs non-recourse finance; the credit risk on both the invoicer and the invoicee
– apart from fraud the major risk in invoice financing is trade disputes (not the credit risk on the invoicee, especially as MarketInvoice tends to work with SMEs selling into FTSE companies); discussions around measuring trade dispute risk
– their competitive advantage in more intangible businesses – design, gaming, education, training etc (being an ever increasingly important part of the world) compared to traditional banks
– the interesting dynamics of liquidity management in terms of having funds available to provide virtually immediate financing for invoices tomorrow [compare this with P2Ps who have a long “marketplace” listing/selling process which slows the reception of money significantly]. Right now they aim to be 85% deployed (ie 15% of lenders funds are sitting round available to go out of the door at any point in time)
– net of cash drag ( he above effect that 15% is sitting around earning little), default, fees etc returns last year were ~11%, expecting about 8-9% this year – attractive returns given the security
– the overall default rate being <0.1% for 7,000 transactions; jurisdiction risk – eg collecting on defaults security varies per country (& would be more expensive offshore given the need to go and collect)
– the vital importance of the duration (period) of P2P transactions in enabling one to measure the risk of a given platform. So MarketInvoice at 7,000 transactions of average duration 50days will have a far higher percentage of completed deals (which is the only point you know how it worked out – lending money is easy, getting back can be another matter). On the other hand P2Ps doing 3, 5 or 10 year deals will have to wait a long time until they or we know how well they are doing it
– an analogy with producing wine in vintages – after 10yrs you have a good idea which vineyard is best. Imagine a new vineyard that makes a vintage every month – you will be able to assess this vineyard far far faster
– not only can you assess the risk that much better/faster but the platform can adjust its approach much faster and fine tune the formula
– “the returns we are delivering every year are not just notional returns they are actual returns”
– MarketInvoice’s growth plans – Anil discusses the adjacent verticals they are planning on entering and exciting news about plans to open to retail investors for the first time
– MarketInvoice’s vision of becoming the destination of choice for small businesses for everything they need for their working capital, that oxygen of funding, that is less than a year in maturity
…and much much more.
Share and enjoy! 🙂