Platform Black’s Louise Beaumont on why the time is Now for Auction Markets – Part I

The first installment of our discussion with Platform Black’s co-founder Louise Beaumont covered why she started an auction market for invoices.  Today we look into why she thinks it will be successful, and what products she offers, and how well the auction is performing.

Trade Financing Matters:  Why do you think you will be successful when TRE, which has been operating since 2008, shut down small business?

Louise:  There are a couple of key reasons – the first is that we started small and have worked from there.  When you are a first mover, you need people who are embracing new ideas – smaller investors and smaller companies fit the bill.  As you prove your model, larger investors and large companies want to use the service.  That’s what we are seeing with our Supply Chain Finance product, for example.

Secondly, we see ourselves as augmenting traditional financial services. We are, for example, working with Banks who view us as a source of complementary liquidity for their clients.  Some banks are really waking up to this and providing a blended working capital service to their clients as a way to acquire new customers.

The third big advantage for Colin (her co-founder) and me is age, and the experience that comes with it.  We’ve learned that we’re the sum of our relationships.  Platforms that have more of a tech-bias may sometimes miss out on just how important relationships – like those with the Banks - are.

Trade Financing Matters:  What products do you offer?

Louise:  We offer two products on our Platform.

  1. SME Invoice Trading Product – here, the SME receives up to 90% of the face value of the invoice, and can finance their invoices up to 90 days.  There are two costs, both of which the SME sets.  And because we run a reverse auction model, the cost will never be more than the SME sets – only less.  Finally, recourse is to the SME, if their end debtor does not pay.
  2. 2.     Supply Chain Finance Product – The main contractor allows their suppliers to have access to our platform, as soon as they deliver on time, on budget and on quality.  One the main contractor has accepted the goods or services from the supplier they issue a promissory note.  The supplier then runs an auction, and receives 100% of the invoice value, less finance costs.   We believe our Supply Chain Finance solution is not only cost competitive compared to other SCF options in the U.K. which we heard are more expensive than ours – but also free for the main contractor, and can be implemented in weeks, not months or years.

 Trade Financing Matters:  How many companies have sold receivables on your auction platform?

Louise: We started our first auction on June 2012 and in June 2013 we processed £3.2M.  Since June 2012, Platform Black has processed over £45M of invoices and has run over 1,000 auctions with no failures.

We currently have c. 600 members, which includes Investors and SMEs.  We have had c. 200 businesses engaging in auctions on some frequent basis, whether that is 5x week or twice a year.

Trade Financing Matters:    What costs are involved for the Main Contractor to set up a Supply Chain Finance Trading Product?

Louise:         With our service, there is no cost to the main contractor – there is no technology costs, no implementation costs, no legal costs, no admin costs, they just have to give access to our service to their suppliers. Costs are borne by the suppliers – two transparent fees - just as for our Invoice Trading product.

Trade Financing Matters:  What fees are involved for the SME Invoice Trading product?

Louise: There are two fees and they are both set by the SME.

The first fee is the transaction fee – this pays Platform Black’s admin cost.  The fee is 0.50% of the amount advanced for 30 days or £100 whichever is the greater, for 60 days it’s 0.75% or £150, and for 90 days it’s 0.90% or £180.

The second fee is the cost of finance.  This is the amount the SME pays to the investors.  The SME sets the maximum cost of finance, and our investors bid that rate down (not up), this means that the SME uses the service when they need working capital and never pays more than rate they set.  There are no surprises.

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