Invoice trading increasingly popular – what is it? by Katie Robinson

Tuesday, 8 August 2017
The alternative finance sector is growing year on year as businesses and consumers alike are opening up to conducting financial transactions outside of the traditional banking sector. Investors, too, are increasingly keen to add alternative finance products to their portfolios. Globally, the total European alternative finance market (crowdfunding, peer-to-peer lending and other activities) has almost doubled since 2014: from £530m in 2014 to £910m the year after! Within this, invoice trading is the fastest growing alternative finance model in Europe, increasing +1057% between 2014 and 2015!

Invoice financing is a general term used whenever a third party agrees to buy a business’ unpaid invoices. It helps businesses to improve their cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid them, which is often in 90+ days. Invoice finance exists in traditional forms such as factoring and invoice discounting, however more recently invoice trading has been providing a quicker, more affordable, transparent solution.

Invoice trading, offered by online platforms such as Funding Invoice, is a flexible alternative whereby businesses in need of working capital are connected with a network of investors who can provide funding against the security of a business’ unpaid invoices. These companies no longer have to wait 30, 60 or 90+ days for payment and so are not as restricted by a lack of cash flow!

As well as being very helpful for businesses, invoice trading is also a good opportunity for investors to earn a return by fuelling the growth of the UK’s small businesses.

There are three major positives factors for investing in invoice trading:
  • SECURITY: Investments are backed by invoices owed by strong (often blue-chip) companies and are verified before funding is provided
  • LIQUIDITY: Investors can withdraw their uninvested funds at any time. Also, because invoices are paid every 40 days on average, funds are never tied up for too long
  • HIGH YIELD: Returns in the invoice trading industry vary depending on which platform is used, however at Funding Invoice, 8-12% annual returns are offered and investors don’t pay any platform fees

Invoice trading platforms are currently only able to work with high net-worth, sophisticated or institutional investors, but if you’re able to self-certify that you belong to one of these categories then this high-yield, secure and liquid product could prove to be a useful addition to your investment portfolio. Be aware though, investing in invoice trading is not covered by the Financial Services Compensation Scheme, so if your chosen platform goes bust, you won’t be able to claim for any losses you incur.

Katie Robinson is an industry specialist for provider Funding Invoice, rated in Startups UK’s Top 100 Businesses To Watch.