In contrast, invoice finance involves a supplier using third party financiers to borrow against its unpaid invoices. Most models involve a business signing up to a service so the invoice finance platform can pay the value of their invoices often within 48 hours, minus a fee which can be up to five per cent of the invoice value.
Cloud accounting businesses are watching the model closely. At a briefing in Melbourne earlier this week, recently appointed MYOB chief executive Greg Ellis said the company was working on developing its own in-house invoice finance product.
Mr Ellis said the exact model for this had not been confirmed but the business was well placed to assess the health of smaller operators who may need invoices paid faster.
“Our ability to credit assess people is probably better than anybody else’s in the market… We’ve seen our customers have been in business for longer,” he said.
MYOB said it was still working on its model and the fees associated with it.
“We’re still designing our invoice financing solution. However, with the knowledge that money flow remains a core pain point for small business, we are working on a product that will have the best interests of small business in mind,” a MYOB spokesperson said.
Xero Australia finance industry director Ian Boyd said Xero did not have partnerships with any supply chain finance providers, but the company was instead focusing on integrating third party apps for invoice financing.
Providers including Waddle, Fundtap, Timelio and Finstro are available in the Xero app marketplace.
“This category, and its popularity with our small business customers, continues to grow as awareness increases and data and automation boost the value proposition,” Mr Boyd said.
He predicted supply chain finance would soon be overtaken by invoice finance products.
“Over time, we see the new invoice finance models becoming more prevalent than traditional supply chain financing, which has been focused on improving cash flow for larger businesses at the expense of their small business suppliers,” he said.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell said it was clear platforms designed to change the game on invoice payment times were booming.
“It is a very fast moving industry and it is turning into a multi billion dollar sector which used properly is fine, but it is not being used properly,” she said.
“Invoice financing has a place and we have spoken to a number of small businesses that have found it incredibly useful in terms of growing their business. There is a place for this very definitely, [but] I don’t believe there is a place for dynamic discounting based on big data and how desperate for money you are going to be.”
Emma is the small business reporter for The Age and Sydney Morning Herald based in Melbourne.