LONDON MarketInvoice, a company launched in January this year to seek business opportunities by helping small firms tackle cashflow problems, is eying more rapid growth as firms hunt out alternatives to the top UK banks for financing.
"So many SMEs (small-and-medium-sized enterprises) are in a bad place right now because their banks are not giving them overdrafts," said MarketInvoice co-founder Anil Stocker.
Britain's Conservative/Liberal Democrat coalition government has highlighted the small business sector as a key battleground in its fight to get more growth into the faltering UK economy.
It struck a deal this year with top UK banks known as "Project Merlin," in which the banks pledged to lend more to businesses in return for legislative restraint by the government.
The banks consistently say they are on track to meet their "Merlin" business lending targets, but many businesses still complain they are not getting enough help from the banks.
MarketInvoice client Connected Pictures - a central London video production and media firm with turnover of 1.8 million pounds and profit of 60,000 -- said its bank had never even mentioned the "Merlin" lending package to it.
"As an SME, we haven't had any communication of Merlin from our bank," said Connected Pictures' boss Peter Penny, who turned to MarketInvoice after seeking alternative overdraft facilities to the company's main bank, HSBC.
"Our usual managers were no longer there. As an SME, the banks were happy to sell retail products to our staff, but less happy to lend money to business," added Connected Pictures' finance manager Desbina Michael.
LINKING UP HEDGE FUNDS TO SMALL BUSINESSES
MarketInvoice's Stocker said small firms' main problem was not so much getting new loans from banks, but late payments from customers, which in turn leads to them falling behind on their invoices.
"In this current period of macroeconomic uncertainty, large corporates tend to hoard cash and the easiest way to preserve cash is to delay paying your suppliers. The worst offenders for paying late are large companies which are behind 48 percent of SME late payment debt," he said.
MarketInvoice's website acts as an online platform upon which small businesses with big customers can auction off their unpaid invoices, which is a market which the company's research estimates to be worth a potential 210 billion pounds.
This helps improve the cash-flow and working capital of those firms and, similar to eBay, MarketInvoice then takes a transaction fee from the seller and the buyer, which amounts to between 0.75-1.0 percent of the volume.
Stocker said the institutions buying up these invoices were often hedge funds, attracted by the possibility of earning between 1-2 percent of the face value of these invoices per month.
"If they continue to re-invest their funds in new invoices over the course of 12 months, the compounded annualised returns are anywhere between 12 to 24 percent, which is significantly higher than banks saving deposit rates, and large cap corporate bond yields," he said.
Stocker said some 50 small businesses were currently using his site and he hoped to have "hundreds" of SME clients using it by the end of next year.
"Our aim is to be auctioning millions of SME invoices a month."
(Reporting by Sudip Kar-Gupta; Editing by Jon Loades-Carter)