Ironically, as the global economy has gotten stronger, payment cycles between buyers and suppliers have gotten longer.
What was once an average of about 45 days from invoice to payment has increased to, on average, 66 days in the U.K. For many small and medium-sized businesses (SMBs) in this market, buyers with big brands stretch those cycles even further, with some taking as long as 90 to 120 days to pay suppliers, MarketInvoice CEO Anil Stocker noted in a recent conversation with Karen Webster and Barclays CEO of Business Banking Ian Rand.
For larger, enterprise-level suppliers, Stocker noted, that lumpy cash flow is solved in any number of ways, mostly by having more cash flow into their coffers via working capital lines that are readily available. For SMBs, particularly those in the “asset light” sectors (fashion, publishing, advertising), long payment cycles turn into serious cash flow problems. That can be even more problematic if those supply chains have a lot of buyer concentration around a few key brands.
It’s a problem, Stocker noted, because small suppliers have no real say when it comes to the timing of those payments. This isn’t a problem with late payments, Barclays’ Rand told Webster. Long payment cycles aren’t really late; they’re just long. SMBs that want to do business with those big brands have to plan and take their receivables lumps — and the lumpy cash flow that comes with it.
Part of that planning in the U.K., said Stocker, is the solution MarketInvoice first took to market. When MarketInvoice customers submit an invoice for payment and receive funds into their account for a small fee (usually between 1 percent and 3 percent, depending on the invoice size and risk), MarketInvoice then collects from the buyer. All of this happens within 24 hours of the buyer confirming receipt of the invoice.
It was a solution to an SMB problem that Barclays found compelling enough to invest in — a first-of-its-kind play for Barclays, and the first partnership with a high-street bank for MarketInvoice. In addition to Barclays acquiring a minority stake in MarketInvoice, it will integrate its invoice financing solution into Barclays’ offering.
“Partnering with an institution like Barclays will greatly accelerate the number of [businesses] that can use this solution,” Stocker said.
Why Barclays Said ‘Yes’
Rand told Webster that the alignment with MarketInvoice is part of the business bank’s larger push to enhance its small business financial services offerings. Barclays is the leading banking player in the U.K. SMB market, with over 1 million customers to call its own. The question it faces going forward, he said, is how to grow that base even larger and strengthen that leading position.
Though facing a long-payment cycle problem for its SMBs that is similar to what the U.S. is facing at present, the U.K. has a rather different financial landscape where SMB players are concerned. In the U.S., there are many banks: big banks, small banks, regional banks, community banks — thousands of banks dotting the landscape, serving different markets. By contrast, in the U.K., there aren’t as many options.
For Barclays, MarketInvoice provided a fast path into its service offering that wasn’t available through the bank, but was one it had long wanted to offer.
“Invoice financing was on our list of products that we wanted to build into our small business offering,” Rand noted. He said the bank thought about building the offering on its own, until it found MarketInvoice and the product it “would have wanted to build.”
The greatest appeal, Rand said, was MarketInvoice’s solution design, taking a traditional factoring product and giving it a “phenomenal” technical interface to make it easy for SMBs to get the benefits of an invoice financing solution, which was typically only available to much larger firms.
Lowering The Cost Of Doing Business
The tension between how quickly suppliers want to be paid and how long buyers want to wait to pay suppliers is nothing new. Though there has been a lot of “public shaming” as of late around buyers who tend to push the payment cycle envelope, Rand said the trends are moving toward longer cycles. The pace of how quickly those payment cycles expand might slow, but it’s unlikely that buyers will suddenly start to pay their suppliers faster, for no reason.
That shifts the solution to the supplier, Stocker said, and the solution is imperative to giving SMBs tools that they can use to optimize their cash flow, if and when they choose to do so.
“Many of the businesses we encounter have never used this kind of financial product before,” Stocker said. “And since they haven’t, they are worried it is an all-or-nothing proposition. Many even have a slight negative association with the invoice financing term, and even find the entire process of exploring it somewhat intimidating.”
Knowing that, MarketInvoice makes it easy for SMBs to put a toe in the water. After being underwritten and accepted onto the platform, Stocker explained, SMBs are in the driver’s seat regarding how to deploy the service. Those that want to test it out can do so with a single invoice, and that’s typically how things start. Once SMBs realize they can shrink their days sales outstanding (DSO) from 60 or 90 days into 24 hours, they are sold.
Businesses that sign on, and are accepted into MarketInvoice’s 12-month subscription plan, not only receive the low interest rate on invoices financed, but have a line of credit they can draw down. Rand said that the SMBs that work within the MarketInvoice product find they are getting a valuable tool in managing the financial health of their businesses.
“Many of the asset light businesses that find invoice financing appealing don’t have a balance sheet that can support a large loan facility,” Rand said.
Invoice financing via MarketInvoice is about the strategic use of a tool that can smooth cash flow in a way that supports SMBs in long-term growth — not simply to solve an immediate cash flow issue and move on.
Today, MarketInvoice’s loans are funded via a marketplace model, with investments from institutions, asset management and high-net-worth individuals as the capital sources. The focus going forward, Stocker said, is to beef up the focus on institutional investors, including adding Barclays as a funding source in the longer term.
For Barclays now, it gives the bank a chance to forge a meaningful and expansive partnership with a financial services player that can expand its horizon. When looking at partnerships in the U.K. banking sector, they often focus on basic services like small-dollar lending, Rand noted. But those basics are already firmly entrenched in Barclays’ wheelhouse — it is already a powerful force for smaller consumer loans. What it can do in concert with MarketInvoice, he noted, is something very different and very powerful — and, in doing so, give small businesses the access and tools needed to help make them the full drivers of their financial destinies.
“We have done a series of calls about this new pair-up with our relationship [management] network across the U.K.,” Rand said, “and the feedback has been incredible. What we are hearing over and over is ‘Yes, we have clients that will really, really make use of this.’ This just fits with what they need and so, for us, there is no question at all. This meets a need in the U.K. market.”