Monday, 11 March 2013

Single Invoice Discounting Meets Crowdfunding

Single or selective invoice discounting as it is sometimes called, has been available for quite some time. It has been very useful for those organisations that neither need nor want to commit to a long term, full ledger, invoice discounting or factoring agreement with one of the high street banks or with one of the many independent suppliers. With single invoice discounting you are not signing a long term agreement and you can chose when and how often you want to use the service and which invoices you want to sell and raise money on.
Many organisations use single invoice discounting when they have a VAT bill to pay, or when corporation tax is due. More and more people are using it to relieve the pressure on their overdrafts, if they are lucky enough to have one, or to fulfil that unexpected order that cash flow would prohibit them from accepting.
The one disadvantage of single invoice discounting has always been the cost. Interest rates of 0.2% per day are not uncommon and many managing directors are unwilling to accept these rates.
There is now another solution and that is to link single invoice discounting to Crowdfunding and auction the invoices that you chose to raise money on to the bidder that offers you the lowest interest rate. This reduces the cost considerably.
The details are as follows

·         The client pays a one off lifetime membership fee of £310.
·         The funding network then charges a transaction fee depending on the payment terms of the invoice. If it is a 30 day invoice then the transaction fee is 0.5% per auction, if 60 days then it is 0.75% per auction and if 90 days it is 0.9% per auction. There is a minimum transaction fee of £100, so small invoices might not make sense unless you bundle them together.
·         There is then the interest rate that has to be paid to the successful auction bidders. The lowest that has been charged is 0.5% per 30 days; the highest has been 1.5% per 30 days. The average so far is 1.44% per 30 days.
·         The seller, the client, sets the length of the auction from half a day to 5 days.
·         The seller also sets out the interest rate that they are looking for and then the investors hopefully bid that downwards.
·         The seller sets out the % of the invoice they want to sell.
·         There are no personal guarantees
·         There are no debentures.
·         They have a 100% record of raising finance at an auction.
·         If you have debentures against your company then waivers have to be sorted.
·         You need to have the money paid into the networks trust account and then they pay you. The trust account details have to be put on the invoices that you are going to sell.
·         The network checks to see if the auction actually makes sense.
·         Invoices from one debtor can be bundled together to make a larger single invoice. No multiple debtors in the same auction.
·         Average auction is £40K but there is no minimum or maximum.

This is a very interesting way of raising short term finance. To find out more please phone the nearest Pegasus Funding Resources contact listed below.
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1 comment:

  1. Effectively the lender advances funds against the total outstanding sales invoices on the debtors ledger with movements on the funding account being controlled between the borrower and the lender.

    Invoice Finance