Crucial Crowdfunding Guide

Invoice Trading

  • Alternative financing for business/commercial entities
  • Unpaid invoices are sold online
  • Individual invoices or ‘invoice bundles’ traded
  • Buyers typically include institutional investors, banks, high net worth individuals
  • Most common form of asset based lending
  • Average ‘auction’ duration is 8 hours

Online Invoice Trading (factoring) connects businesses with investors. It is a well-established alternative form of finance for business. The seller uses unpaid invoices as ‘collateral’ to unlock funding very fast. The financing happens against individual invoices or bundles of invoices. This way, finance can be provided cheaper and quicker than by using traditional providers of business loans/overdraft or traditional ways of short term funding…

Invoice trading Crowdfunding is the process in which business sellers’ auction their invoices online, as a way to gain quick access to money that would otherwise be tied up. They can sell them individually or in bundles to the bidders (buyers) who offer the most competitive price to advance them the money. Sellers then buy the invoice back from buyers, and can decide whether to do so after 30, 60 or 90 days.

Buyers of these invoices include a wide range of institutional investors, high street banks, asset-based lenders, cash-rich companies and high net worth individuals. Buyers get a fee for stumping up the cash, which varies from auction to auction.

Companies from any sector and of any size can use this way of financing and there will generally be no minimum or maximum auction size. The vast majority of sellers however are SMEs. Invoice financing is the most common form of asset based lending and in most cases acts to support businesses to manage their cash flow, bridging the gap between the delivery of goods or services by a business and the payment from its customer.

Typically, the procedure is as follows:

  • You decide that you want to use Invoice Trading as a means of freeing up cash
  • Select a suitable platform and create an account – Usually this procedure is very fast. However, sometimes the platforms decide to evaluate their users, so you will have to upload some proof-of-existence documents about you, your bank accounts and your company. This way the platform can evaluate your application and either accept and create an account for you or reject you.
  • Upload your invoice(s) for sale – the platform run some validation checks on the invoices in order to verify that they are real and not fake. Some platforms may even contact the invoice issuer in order to verify their identity or the validity of the invoice that you are trying to sell.
  • The funding persons, companies or organisations bid for your invoice and when the bidding finishes, usually after 24 hours, then your invoice gets sold and you get a percentage of the invoice’s money right away
  • Finally, when you receive the money from your debtors, you will have to pay your funder back the full value of the invoice

Invoice trading (or Factoring) may also be referred to as ‘Discounting’… The main difference being that Invoice Trading customers will know their invoices to a third party. In the case of invoice discounting, the financier lends the firm money against a percentage of the value of its unpaid invoices. As the invoices are not sold to the financier, the firm’s customers will not be aware that they are being used to raise finance for the firm.

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CRUCIAL is co-funded by the EU through ERASMUS+. Project: CRUCIAL (Crowdfunding Capital) 2015-1-IE01-KA202-00862The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein