How fintech has given invoice financing new legs to stand on
Is invoice financing the way to secure the future of online SME lending? Online fintech financier Skippr talks to finder.com.au.
Invoice financing may be soon gaining steam with small businesses thanks to a fintech makeover. Skippr is an innovative cash management platform that offers invoice financing and cash flow forecasting. For businesses looking for an invoice financing solution, Skippr's latest product could be what they need.
Fintech, or financial technology, has always been an enabler. Whether it's been opening the door for risk-based rates in Australia, giving savers a way to earn high rates on relatively low-risk investments, or letting small- to medium-sized enterprises (SMEs) access capital that they previously couldn't.
In the case of SMEs, fintech business is booming.
"When you've got an invoice, it's going to be paid because you've done the work to understand it. It's just not now," explains Alistair Lamond, commercial director of Skippr.
"The probabilities of default are far lower. If you understand those risks around the invoice, things like fraud and credit risk, and the chance to default, and you mitigate a lot of those through effective technology, you can provide a business with far more lending for less. And hopefully with our technology, we can build far more seamlessly as well."
Skippr's product displays the attitude shift towards invoice financing where cash flow management and factoring go hand in hand, and businesses are seeing the financing as a way to supplement their cash flow. Invoice financing is nothing new, but the rise of fintech has given it new legs to stand on.
"There are short-term lenders out there now that are servicing the same market, but we saw the biggest opportunities in providing more than just finance; finance is the end result. Before that, they need to understand more about the cash flow cycle," says Lamond.
While many online business lending market entrants are focused on shorter term finance (less than 12 months), Lamond and Skippr's CEO, Patrick Crivelli, remain focused on invoice financing.
Skippr's cash flow management platform lets businesses forecast and optimise their cash flow, while taking advantage of Skippr's invoice financing.
"It's essentially going to be a robo-advisory tool for an SME," Lamond explains.
The robo-advisory and invoice financing hybrid model lends itself to a heavy investment in data, which is a similar position to where most fintech companies find themselves.
"Everyone's got data out there," Lamond says. "Whoever can gather it the most effectively, in the most cost-effective way, that data will win."
While both invoice financiers and short-term business lenders use retrospective data to inform their credit decisions, Lamond explains that invoice financing takes it a step further.
"We're using retrospective data plus we're actually dealing with something that's real; an invoice that will get paid. That piece is what really defines the price of the debt, or the price of finance and the risk of it."
Skippr aims to help businesses understand their revenue streams with its free cash flow management software, which connects to accounting software and advises on cash flow performance. The company also recently released a free eBook covering cash flow management.
Australia's late payment culture, or the delay of the payment of invoices, is one of statistics mentioned in the eBook. While invoice financing is one way for businesses to mitigate this culture, due to the complexity of the product, much of the Skippr's focus is spent on awareness.
"When you look at the size of the market, and how much invoice financing is servicing, it's tiny. So the awareness is definitely not there. For instance, everyone looks at an overdraft as being simple, and it is simple. And while invoice financing is a little bit more sophisticated, when you give them the right tool to understand it, it's actually reasonably simple in its own right."
"Invoice financing is dealing with something that's real, an invoice until they get paid. And then that piece is really what defines the price of the finance, and the risk of it. And that of course, in the end, price always wins."