Is it Time to Retire Invoice Auctions?

Invoice Auctions, the fintech industry’s attempt to move into the invoice finance space, have had their fair share of press in recent years, both positive as well as questioning.  

Once touted as the modern day solution to cash flow funding for SME’s, experiences for some have shown the online environment lacks the reliable service proposition offered by mainstream invoice financiers. The on line transaction experience has been viewed by many as cold and sterile without the more familiar relationship component, with uncertainty around invoice approvals, and funding timelines.

What is an invoice auction?

So just to be clear, an invoice auction is where a finance provider (investors, hedge fund managers, asset managers and so on) bids to advance an organisation on an invoice issued to their clients. It is certainly an interesting concept although one which has failed to take off in any groundbreaking way, especially in Australia.

The issue for sellers.

One of the main problems with the invoice auction application is that it is contracted through an auction, (as the name suggests), which means that you, as a business owner, can never be confident that your invoice will be picked up. Or in the event that it does, you can never be 100% sure that any future invoice will be bid upon and advanced further down the track, which is when you may need it the most.

The issue for buyers.

Now look at it from the investor’s point of view. How can they be sure, especially when dealing with a small business, that the invoice is legitimate? Recognised business names seem to fare better with this kind of situation. And as the market is relatively small, the return for these investors is fairly limited as well. It’s a catch-22 for businesses who require a choice of funders – if the return is low for those assisting, why should they bother? In truth, one major investor could sweep up the market place limiting the return on investment for others and monopolise the whole industry.

There is no reliability and there is no guarantee. And when it comes to your business, these are two words which you don’t really wish to have associated with your cash flow. You want reliability and a guarantee of payment every time that you need it.

Invoice factoring vs invoice auctions

Invoice factoring operates slightly differently as these two factors are always present. And that is a huge relief for business owners who can’t afford to write off late debts. And with invoice finance companies like Invoice Money offering no minimum fees, no annual fees, and no early exit payments, it seems that organisations are favouring invoice factoring over the less popular invoice auctions. That seems to be a sound financial decision.

With any loan or cash flow advance, make sure you take the time to read all the fine print and understand exactly how much you will be paying out and how much you will receive in return; and that goes for any fees or hidden charges that you may incur throughout the process.

Small business owners, regardless of their present cash flow situation, should be celebrating each time a new innovative cash option hits the market. While you may not need it today, or at all, you never quite know what is around the corner. Unfortunately for some, invoice auctions have fallen short when it comes to having a reliable cash flow partner at your side. Having a variety of options at your fingertips is important. However, it’s even more important to make sure that you choose the right option for you.