At the same time, invoice trading has experienced impressive growth rates with average annual growth between 2014-2017 of 480.2%. Thus, in 2017, €535.84m was raised through invoice trading, which corresponds to 15.9% of the total market of €3.4 billion. So far, invoice trading is especially an important type of alternative finance in Europe, where it is ranked as the crowdfunding model raising the second highest volumes, according to the newest data available on the European crowdfunding market. This will also ensure that many entities have an interest in the invoice being paid according to the terms, both all the other investors but also the p2p platform which is interested in showing good returns.
#Crowd funding factoring invoices full#
However, there is always the risk that the customer will never pay the invoice, which would potentially result in an expensive and complicated process – depending on the structure of payment terms, the company that owes the money specified on the invoice, and the p2p platform.Īs an investor, you will limit your risk when not lending the total amount of the invoice amount to the company borrowing as this creates a strong incentive for the borrowing company to collect the total amount owed on the invoice, or you will be more investors interested in collecting the owed collateral.Īs an investor, you can diversify your risk on the p2p invoice market by not buying the full amount of the invoices you invest in (the amounts are often quite large as it would otherwise not make sense to sell them on the invoice trading markets), but instead, buy a small piece of many different invoices. In contrast to other types of peer-to-peer lending, like p2p business lending or p2p consumer lending, where the investment is often unsecured, invoice trading has the advantage of having the invoice as collateral. Invoice Trading as an Investment for P2P Investors Also, due to the digital nature of invoice trading or p2p invoice finance, it is likely to provide a more user-friendly experience for the business. The main alternative to invoice trading, traditional invoice factoring, provides many of the same advantages as invoice trading, but with less flexibility and speed. The invoice can either be sold for instant payment to release cash and improve the company's working capital immediately, or it can be sold via a more complex structure to secure a revolving line of credit. Outstanding invoices can be financed in two ways.
Also, it enables the business to reinvest in growth earlier than what would otherwise have been possible if they have had to wait to receive payment later. Thus, by using unpaid invoices or receivable notes as collateral, a business can sell its accounts receivable and solve potential difficulties related to various issues, such as the beforementioned long payment period, obtaining business credit, cash flow, and short-term liquidity for unexpected expenses. An example of this could be snow removal companies working in two specific winter months using expensive equipment but getting paid only after 90 days, or some other specified period. This situation happens because many companies sell their goods or services on credit – especially to larger customers, which means that they will not receive payment until a later specified time in the future.
#Crowd funding factoring invoices free#
Invoice Trading as a Source of Finance for SMEsīusinesses usually engage with invoice trading if they are looking to improve their working capital and free up cash that can be used to improve their short-term liquidity, pay expenses, or make new investments to grow their operations. For some companies, invoice trading is attractive because it will free up cash from, for example, slow-paying customers with payment terms above 60 days investors will be looking for attractive returns and the p2p platform will earn their money by charging a fee to either the business (typically an SME), the investor, or both. Invoice trading requires three parties: A network of investors, an online p2p platform, and a company willing to sell an invoice or receivable note at a discount. The collateral value of an invoice is the future payment of purchased goods by a company or government. It is characterized by asset-backed lending in which the invoice function as collateral. It is a type of peer-to-peer lending that allows individuals or institutional investors to purchase invoices or receivable notes from a business at a discount. Invoice trading is also known as p2p invoice finance or invoice crowdlending.
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