A technology business has launched a new way of matching firms starved of cash with businesses who are willing to purchase their invoices.
PeerPay has developed a cloud-based platform that links the larger, cash-rich firms within an accountant’s client portfolio with smaller, client companies within the same community looking for money to grow.
The brainchild of founders accountant David Ireson-Hughes, Michael King, an experienced financial services executive, and Alan Burns, an experienced technologist, the platform – called FloFunder – is a new twist on the traditional peer-to-peer invoice finance model.
It enables small businesses to ‘sell’ verified invoices to larger businesses who use the same accountant, and receive between 95 to 100 per cent of that invoice value in advance to support their cashflow. The seller retains control of their invoice ledger.
Unlike online invoice auctions where funders must bid and monitor each invoice, the process is entirely automated.
The platform’s algorithm searches all registered funder’s return and risk criteria records, validates that enough funds are available, and automatically allocates percentages to every invoice. This ensures that all funders get an equal opportunity to participate and can achieve their stated return requirements. It also ensures that all sellers get the most cost effective price.
“FloFunder is, in effect, a closed online dating agency between an Accountant’s clients with cashflow requirements and clients who have cash to invest,” Ireson-Hughes explains.
FloFunder is fully integrated into the accountancy package workflow, initially Xero. The service collects all historical and current information in the cloud accounting system to compile a risk profile for businesses seeking funding based on their invoicing and collection histories. Profiles are continuously updated based on actual real time performance.
“The design of the fully automated matching algorithm using artificial intelligence is to ensure that any potential risk is spread across as many funders as possible, within their own designated criteria, to minimise the impact of any potential default,” Ireson-Hughes adds.
Buyers can choose a low, medium or high return profile and could reap returns of up to 18 per cent on their investment. The entry level for investors is GBP2,500. The discount fee paid by the seller is comparable to traditional invoice finance providers.
Ireson-Hughes believes that FloFunder will be of significant benefit to small businesses, larger businesses, and their accountant advisers: “Accountants have clients sitting on cash doing nothing,” he says, “and other smaller clients struggling to borrow cash at an affordable price.
“Putting the two together is a ‘win win’ for all parties: the seller gets an immediate injection of cash they need to grow; the buyer gets a percentage return on the cash he has invested; and the accountant takes a commission on the transaction and provides a service that binds both clients closer to their practice.”
The platform itself is provided to the accountants free of charge and can be white-labelled as required.
PeerPay CEO Michael King believes that too many viable businesses continue to fail because of lack of cash.
“Statistics at Companies House indicate that more than 275,000 businesses were liquidated in the past year and I am sure that a good percentage of these is because they didn’t have access to alternative funds,” he says. “And yet despite there being some five million SMEs, only c44,000 actively access ‘alternative finance’ according to published statistics.
“FloFunder liberates cashflow for business clients and offers high returns on their money to those with cash to invest, and is probably the most ethical platform available as it is aimed to ensure that all parties involved get a fair deal.”