Platform Black looks to fill small business funding gaps

John Regan

John Regan

A director of a U.K.-based invoice-trading company believes that although companies can use his platform for just a single invoice, they will come back again and again.

That is because invoice trading fills crucial funding gaps that plague many small businesses while stifling their growth, John Regan said.

Mr. Regan said Platform Black began funding invoices in June of 2012 when they handled £16,000 with a minimum invoice amount of £500.

Three years later the minimum invoice is £5,000 and the company funds a monthly average of £3 million. Their biggest single funded invoice to date is £750,000 and their largest corporate facility is £6 million, though Mr. Regan said that will soon rise to £15 million.

Mr. Regan said Platform Black serves two client bases. The first is those auctioning invoices on the platform. Companies wishing to auction invoices create an account.

platform-blackPlatform Black then performs due diligence to make sure that company has a minimum net worth of £50,000.

Once approved, companies can place chosen invoices up for along and indicate the maximum rate they are willing to pay. Funders are notified of the auction, with interested ones placing bids. At the auction’s close, the selected funder transfers the funds to Platform Black who then passes them on to the company the next day. Platform Black charges a one percent fee of the gross invoice amount plus the Value Added Tax.

Mr. Regan said Platform Black’s process brings certainty to the submitting company because they know the maximum they will pay.

“The company sets the rate,” he said. “As more funders bid on that invoice, the rate drops as those funders compete for the business.”

Mr. Regan said Platform Black is seeing increased interest from institutional investors, and what he terms “semi-institutional investors” such as family offices. These groups are looking for portfolio diversification and investing with Platform Black helps with that goal.

Mr. Regan said the UK market is “quite interesting” at present. On the corporate side the problems he is seeing are more related to a growing economy.

Some fields like construction are seeing a labor shortage, he said. That makes invoice payment terms more crucial than ever. To retain the top talent, contractors are looking to supply chain finance to obtain the funds necessary to pay them more frequently.

Mr. Regan said Platform Black’s technology makes it possible to allow single invoice factoring.

“Seventy percent of businesses in the United Kingdom give up when they are turned down by a bank,” Mr. Regan said.

“There is a low margin cost due to the technology,” he explained. “Forty percent of our users fund a single invoice.”

“We’re hoping for regular use as they find it flexible and easy.”

Mr. Regan said Platform Black was originally envisioned as an eBay for invoices, where a hands-off approach could be taken.

But as the company began to scale, funders expected a higher degree of due diligence, so Platform Black added a risk team to the finance unit.

The next challenge for Platform Black is to educate the market.

“Seventy percent of businesses in the United Kingdom give up when they are turned down by a bank,” Mr. Regan said.

The United Kingdom’s marketplace lending industry was supposed to benefit from a pair of government initiatives, but only one has born fruit.

To help stimulate the economy following the recession, the government began injecting money into companies like Platform Black in order to stimulate lending to local SMEs, Mr. Regan explained. That has worked fairly well.

What has been less successful is an initiative, launched more than a year ago, which would force banks to refer rejected applicants to alternative lenders in the hopes of stimulating competition for the loans and a stronger economy.

“Referrals from banks have been conspicuously absent,” Mr. Regan added.

To emphasize his point, Mr. Regan cited an article by Rebecca Burn-Callendar in the Daily Telegraph’s Aug. 10 edition.

Ms. Burn-Callendar wrote that in June, banks lent £5.5 billion less to small businesses than they had the previous month, the biggest drop since records began to be kept.

“Alternative funding providers are calling on the Government’s British Business Bank, which will spearhead the bank referrals scheme, to accelerate the introduction to prevent a contraction in the small-to-medium-sized enterprise (SME) sector,” Ms. Burn-Callendar wrote.

Take away the “mandatory” and few banks are doing it on their own, Mr. Regan said.

“Referrals from banks have been conspicuously absent,” Mr. Regan added.

“There has been some pushback and delays through the appeals procedure. We are seeing maybe one percent of what we were expecting.”

What is clear is that funding is clearly needed if the economy is to flourish, Mr. Regan explained.

“5.2 million SME’s, 49 percent of all businesses, employ 25.2 million people.”

“The barrier to growth is a significant concern. If banks are stepping back (yet) slowing us down, it doesn’t make much sense.”

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