For Anil Stocker, 28, and his former university friend Charlie Delingpole, 29, the financial crisis didn't spell disaster. In fact, it was a massive opportunity.
Stocker had worked in the private-equity departments of various investment banks investing in small and medium enterprises (SMEs). So he knew the problems these firms now faced. "During the good old days before the crisis it was easy for small businesses to get a £250,000 overdraft signed off. After the crisis things got much harder."
Businesses were forced to look at invoice financing where a bank or private lender offers an advance on an outstanding invoice. But "people saw it as a last resort. It had opaque fees, high costs and long contracts so business owners worried that once they started using it they wouldn't be able to stop." Stocker and Delingpole were convinced that they could improve the system. "Other firms, such as peer-to-peer lenders Zopla, were helping borrowers find other sources of finance." Why not do something similar with invoice financing?
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In March 2010 they quit their jobs at investment banks and began working on an online auction where lenders could bid to make advances on borrowers' invoices. "We only wanted to work with SMEs that had invoices with large blue-chip clients or the government. That made it less risky for lenders."
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With their business plan ready, the pair went out to court investors. "By September we had eight angel investors." With the £300,000 they raised they were able to kit out an office for the new firm, MarketInvoice. They hired an IT specialist to build a website and a secure platform for the auctions. Meanwhile, Stocker tried to find willing SMEs.
By the end of the year, Stocker had met 60 firms and still not found a willing taker. "No one wanted to be the guinea pig and be the first firm to try our system."
In January 2011 they landed their first customer a small recruitment firm that placed IT staff in the Post Office. "The owner needed enough money to cover wages while he waited to receive the cash from the Post Office. He wasn't impressed by the banks so he was willing to give us a try." The auction was well received by lenders as "the Post Office is effectively the government".
With a case study to show other SMEs, it became easier to attract clients. They also marketed with trade associations and magazines. "Slowly we began to realise the types of industries that needed us." For example, importers often needed finance to cover expenses until they had sold their wares in Britain. MarketInvoice's strict emphasis on SMEs with quality invoices meant there was plenty of interest in auctions, which in turn helped the SMEs receive competitive interest rates and charges.
The firm took a cut of the advance and a percentage of the profits made by the lender. In the last two years sales have rocketed. "We've been helped by the fact that banks are pulling out of certain areas and SMEs are actively looking for other ways to finance themselves."
In the last two months, MarketInvoice processed £6m of advances, bringing the total in the last two years to more than £22m. But this is just the beginning: "the market for invoice financing is huge so there is plenty of scope for growth", says Stocker.
