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Is Online Invoice Finance Poised for a Shake Up?

The online invoice finance space, the success of which in the UK has thus far been largely attributable to just two platforms, appears to be poised for a shake up.

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MarketInvoice and Platform Black have displayed tremendous growth since launching in early 2011 and 2012 respectively. MarketInvoice has now financed invoices worth upwards of £300m. The pair of alternative funders account for a combined £400m of invoices financed, and yet for a long time there has been a curious shortage of new entrants into the sector.

By contrast, the peer-to-business lending arena is littered with promising up-and-comers that are nipping at the heels of Funding Circle and the like. Lately, however, a number of developments suggest that MarketInvoice and Platform Black are in line for some long overdue company.

In early September, we broke the news that Basware – the innovative e-invoicing company – was partnering up with Arrowgrass Capital. The purpose of the move? To couple a funding functionality with Basware’s e-invoicing software – aka. Basware Factoring. Basware processed around 80 million invoices in the year of 2014. If even a tiny fraction of those invoices were to be funded, the numbers would very quickly become very meaningful indeed.  

And now a similar arrangement appears to be on the cards for Tungsten – an equally titanic e-invoicing outfit. The aim is to develop the same basic facility, allowing Tungsten’s client businesses to seek immediate funding against the value of their invoices. For the purpose of this initiative, Tungsten has signed a billion pound deal with Insight Investment Management. The sheer size of the deal alone suggests that Tungsten anticipates rampant demand. Indeed, Tungsten CEO Edmund Truell recently told Proactive Investors the following:

“This (the invoice financing business) should be the most lucrative part of the (overall Tungsten) operation.”

There’s even potential competition emanating from among some of the peer-to-peer lenders. We recently covered Assetz Capital’sjoint venture with the US-based Interface Financial Group. The purpose of this union is to bring a new online invoice finance product to the UK, which should be rolled out over the next couple of months. And you have to believe that other peer-to-peer lenders – particularly the most established and successful operators – are weighing or have weighed the benefits of a similar diversification of product.

What is the significance of this sudden surge in activity? Well, it should be positive news for the invoice finance sector. First and foremost, this highly flexible variety of funding should stand to reach a great many more businesses when fed out by a much larger number of providers. Second, increased competition for the custom of these businesses should also drive up standards across the sector.

Is it a coincidence, for example, that MarketInvoice has recently partnered up with the accountancy software providers Kashflow, Xero and Sage? More than 800,000 businesses use Sage software to manage their own business or somebody else’s. Access to these businesses will, of course, be invaluable – as will the streamlining effect that Sage-like softwares will have on the MarketInvoice funding process. The platform’s Xero partnership will supposedly allow finance-needy business to apply and be approved for funding in no more than 20 minutes.

But regardless of whether or not these moves should be viewed as armaments in anticipation of a perceived spike in competition, what is clear is that the sector is about to become much, much busier. What is equally obvious is that strategic partnerships are now the order of the day, with new entrants (Tungsten, Basware and Assetz) and established outfits (MarketInvoice) both having forged a flurry of valuable tie-ups over the past few months alone. 

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