MarketInvoice is a name well recognised in the alternative financing sphere. Having been founded in 2011 out of the identification that many SMEs struggle with cash-flow problems, they have gone from strength to strength and in the 5 years they have been running, they have grown from a team of 2 to 80, with two UK offices. Yesterday, I was lucky enough to speak to Andrew Smith, Finance Manager at MarketInvoice to delve a little more into their service and hear about how R&D Tax Credits helped to strengthen and grow the business.
In essence, MarketInvoice is a short-term cash-flow solution allowing SMEs to borrow against the value of the invoices they have raised to their customers. In many cases, invoices can be paid on 30, 60 or 90+ day terms, which can be a real barrier for small companies if they need the cash now to reinvest or bridge funding rounds.
This was recognised in 2011 by Anil Stocker and Ilya Kondrashov, the two co-founders. They wanted to help SMEs’ cash-flow and identified invoice finance as a possible solution; they realised it was something often overlooked that had not been brought effectively into the digital age and so, MarketInvoice was founded.
In layman’s terms, the way it works is that when an SME has a sales invoice, they can raise finance against it on the MarketInvoice platform. The invoice is then bid on by a pool of investors who come from a range of backgrounds, from high net worth individuals to institutional investors. The majority of bids are made using the Autobid function. This allows investors to set their risk preferences, which are then followed by the platform when making bids on their behalf. Individual investors fund only a part of each invoice, thereby decreasing the risk. Investors benefit from being able to invest in a short-term funding product (as the typical 30, 60, 90 days maturity is shorter than many investment options out there) and it benefits the SME by allowing them to access funds right when they need it.
One challenge MarketInvoice had to overcome was that some invoices are, by their nature, more high risk than others. For instance, an invoice in the construction industry could be subject to more dilution than, say, a temporary recruitment invoice, so they needed to reflect this in the amount that could be advanced against the invoice. The invoices are processed by a risk engine developed by quantitative analysts to determine their risk factor (they have 10 risk grades which range from high to medium to low risk).
Although invoice factoring had been around for a while before the company was founded, what sets them apart from the competition is the speed by which they can provide funds to SMEs. Gone are the days where you had to finance an invoice using a bank, a process which could take a long time – now, MarketInvoice prides itself on how they can effectively have a client apply one day and have the cash in their account the next.
The Tech team has been divided into two ‘squads’, which are each focused on two of MarketInvoices key objectives, building trust in and growing their product. An example of their work is that after seeing that it is tedious to have to input and re-input dates and details from the invoices, they built a PDF scanner that could extract this information quickly and easily. The Tech team have also developed a Xero and Sage integration so that applying for (and receiving the money from!) invoice finance became a much smoother and agile process.
They have an exciting 2016 ahead of them as well, with the recent development of an additional two revenue streams to complement their core invoice financing product. The first is purchase order finance. This is higher-risk than invoice finance (as it happens earlier in the purchasing process), but they have identified that some investors would be willing to pursue this avenue, for a higher rate of return. Similarly, they are also branching out into contract finance. A typical customer would be SaaS providers whose products are often purchased for a 12-month period, with 12 license payments per year. MarketInvoice allow SMEs to raise finance against these payments up to 12 months before they would otherwise see the money.
Both of these new products were built with the help of the R&D Tax Credits cash injection we helped claim for MarketInvoice. Knowing that there was an extra reserve of finance they could claim for, allowed MarketInvoice to push on and speed up the internal development and build process, resulting in a diversified product range for them and wider interest from their customer base.