An increasing number of Australian fintechs are ramping up their alternative finance offerings, giving SMEs cashflow solutions such as invoice financing or lump sums of credit for business-to-business payments.
Zip Co — one of Australia’s original buy-now, pay-later (BNPL) players — announced it would roll out a new credit service, giving SMEs access to up to $150,000 to cover a range of business expenses.
Accounting software and solutions company MYOB is set to roll out its own form of invoice financing this calendar year to help SMEs manage cashflow, according to the Sydney Morning Herald.
There are several models that invoice financing is based on.
MYOB’s main competitor, Xero, uses its accounting software to integrate with five invoice financing providers that offer both invoice factoring and invoice discounting — but Xero doesn’t offer it directly.
Invoice financing explained
Invoice factoring is when a supplier sells its unpaid invoices to the finance company, who then pays the supplier most of the invoice’s value. The supplier’s business customer then pays the finance company when the invoice is due, who in turn sends the supplier the remaining value of the invoice minus any fees.
Invoice discounting, on the other hand, allows the supplier to retain ownership of its invoices. This means that a supplier invoices their customers as usual, before sending the invoice to the finance company.
The finance company then offers the supplier a lump sum of credit and, when the supplier has received payment from its customer, it pays back any credit received from the finance company as well as fees or interest.
MYOB has been interested in invoice financing since at least May last year, after it publicly requested customers to register their interest the potential product.
In MYOB’s model, MYOB would act as the financer, letting suppliers borrow money to cover unpaid invoices. MYOB would then pay the supplier the value of its invoices within two days, and charge a fee of up to 5% of an invoice’s value, the SMH reports.
Invoice financing has been a controversial solution to managing cashflow, and has come under more scrutiny in recent months after the UK firm Greensill — an international supply chain financer — collapsed.
The firm’s collapse left its customers around the globe in limbo, including Sanjeev Gupta’s GFG Alliance, which owns the Whyalla Steelworks.
Under Greensill’s model, the financer buys invoices from big companies to pay their suppliers early, who are generally smaller businesser, for a fee.
Zip Co’s B2B payment offering
Zip Co now offers two alternative business finance solutions, with the first being Zip business payments. Zip business payments allows business owners to use BNPL for checkout payments of up to $3,000.
The second option, Zip business trade, offers SMEs access to credit between $3,000 and $150,000, which is interest free for 60 days. That credit can be used anywhere Zip is accepted, including online, in stores, or even to pay bills and invoices.
SmartCompany contacted MYOB for comment regarding its new invoice financing offering but it declined to comment further.