tag:blogger.com,1999:blog-5447196863363725640.post4494372030464907263..comments2024-03-28T07:20:34.218+00:00Comments on Pragmatist: Early Payment of SME InvoicesUnknownnoreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5447196863363725640.post-58022454076706367052008-11-20T11:43:00.000+00:002008-11-20T11:43:00.000+00:00Aha, you see? Fantastic. Thanks for pointing this ...Aha, you see? Fantastic. Thanks for pointing this out.<BR/><BR/>I can't seem to find any statement about why this is not somehow subject to US securities and/or exchange regulation. That appears to be something that our colleagues across the pond worry about later on - e.g. Prosper and LendingClub. <BR/><BR/>I can see a start-up being able to get enough volume to gain traction in the US market, but best not to underestimate the marketing challenge in the SME marketplace in the UK...Pragmatisthttps://www.blogger.com/profile/00936849584688147006noreply@blogger.comtag:blogger.com,1999:blog-5447196863363725640.post-72915815614778373932008-11-20T10:23:00.000+00:002008-11-20T10:23:00.000+00:00Oh, look.http://bits.blogs.nytimes.com/2008/11/17/...Oh, look.<BR/><BR/><A HREF="http://bits.blogs.nytimes.com/2008/11/17/selling-an-i-owe-u-online/" REL="nofollow">http://bits.blogs.nytimes.com/2008/11/17/selling-an-i-owe-u-online/</A>Unknownhttps://www.blogger.com/profile/06522725096085070497noreply@blogger.comtag:blogger.com,1999:blog-5447196863363725640.post-18898566668831368782008-11-19T18:26:00.000+00:002008-11-19T18:26:00.000+00:00Thomas, I see you have the bug!To be clear, these ...Thomas, I see you have the bug!<BR/><BR/>To be clear, these wouldn't be loans, but a straight assignment of each invoice (debt). That's why it wouldn't interrupt existing finance facilities. Early payments could be to a supplier's "locked box" account, just like any other early payment in the ordinary course. A collections agent would chase the debt, as normal, though it may have volume on its side if lots of suppliers had sought early payment.<BR/><BR/>This would be for trade receivables less than $200m pa. The discussions I mentioned were actually initiated by someone who already finances receivables above that number and was interested to see if Zopa members might take any flow of smaller stuff. <BR/><BR/>As to the commercial paper market: on a separate matter I was once quoted about £100k to set up an unregulated commercial paper offering. So you'd need 10s of millions of debt to to make it worthwhile, and a market-maker willing to hold/warehouse the debt until there was enough to interest potential bondholders. Not something they like doing with their capital at the best of times, let alone now.<BR/><BR/>While defaults might have that effect, the "shaming" of any non-paying buyers is not really central to success here. Big buyers should like such a marketplace, as it presents an opportunity to extend payment terms while suggesting a transparent, independent source of finance for people who want to be paid early. They would be nuts in those circumstances not to honour the confirmed commitment to pay the invoices. In fact, in the buyer-driven model, they would already have issued a batch file containing the order to pay the listed accounts on a set date.<BR/><BR/>Of course, extending your payment terms with notice to suppliers is one thing, but delaying payment on existing invoices already issued on previously agreed terms is quite another. The latter stunt would result in a call from the collections agent, and invoices issued to that buyer probably wouldn't be welcome in the marketplace again.<BR/><BR/>On credit-scoring, you could see a range from just making available links to providers of credit reports for members to buy if they wanted them, to gradually building a kind of star-rating system based on key criteria transparently derived from such reports, with click-through to the report.Pragmatisthttps://www.blogger.com/profile/00936849584688147006noreply@blogger.comtag:blogger.com,1999:blog-5447196863363725640.post-22385158504600277802008-11-19T16:59:00.000+00:002008-11-19T16:59:00.000+00:00I think that's only slightly below the rate that I...I think that's only slightly below the rate that Indonesian fishing villages get from their moneylenders! So much for progress - I never realised it was that high.<BR/><BR/>I'm not certain how an individual would collect on a trade receivable if the payer was overdue. I suppose a straight 90-day loan would be manageable; the rich person just waits for the administrator to send them whatever's left.<BR/><BR/>The commercial paper market in the UK is open to fairly small firms (if I'm understanding my IB friend's drunken ramblings correctly). Providing there's credit rating data and filled accounts, I don't see why it couldn't be extended down to SMBs. They'd be a higher risk premium, but nothing like Libor+32%!<BR/><BR/>It's an interesting question whether you could actually get on-time payment by just shaming big firms. Rationally, if Tesco openly delayed payment to their small suppliers, the markets should see them as weak and push up their risk spreads in the capital markets. Or it could be such a habitual practice that no-one would judge them for it...<BR/><BR/>Who does credit scoring on businesses? I've only heard of TradeRadar, and they seem to have disappeared.Unknownhttps://www.blogger.com/profile/06522725096085070497noreply@blogger.comtag:blogger.com,1999:blog-5447196863363725640.post-27502824442309116452008-11-18T18:14:00.000+00:002008-11-18T18:14:00.000+00:00Similar reasons they lend to creditworthy individu...Similar reasons they lend to creditworthy individuals at Zopa today: the spread between savings and loan rates that they get to share when you take a bank out of the middle; and it's a new asset class for your personal portfolio. <BR/><BR/>In this case there's an even healthier spread between savings rates on spare cash and the rates SMEs have to pay for finance against their trade receivables vs rates in the personal loan market. I'm told that it's not unusual for small businesses to be saddled with annualised rates equating to 36%APR (to use personal loan terms).<BR/><BR/>Your money would also only be tied up for, say, 30 - 90 days rather than about 18 months or so it takes most 3 year personal loans to redeem; and you could diversify across invoices, buyers, and suppliers to reduce risk. There is also publicly available credit reference data on buyers for those who want it.Pragmatisthttps://www.blogger.com/profile/00936849584688147006noreply@blogger.comtag:blogger.com,1999:blog-5447196863363725640.post-50327333794688280022008-11-18T17:24:00.000+00:002008-11-18T17:24:00.000+00:00Not sure why random cash rich individuals would wa...Not sure why random cash rich individuals would want to become invoice factors.<BR/><BR/>In Yeltsin Russia there were systems of promissory notes and reassignable invoices that stood in for the banking system after it collapsed. Everyone took paper from their customers, and sent it back to their suppliers. IOUs from electricity utilities would circulate as a local currency, and the big local firm's billing departments would effectively function as banks.<BR/><BR/>Obviously it was a giant grinding bookkeeping headache, but that's what computers are good for right?Unknownhttps://www.blogger.com/profile/06522725096085070497noreply@blogger.com