Should Companies Sell Invoices on Auction Marketplaces? Part II

This is the second of our posts on Electronic Invoice Marketplaces and examines how invoice auction markets work.

How the Invoice Auction Process Works

Most auction platforms are “seller” friendly, that is, they allow sellers to set minimum advance rates, ceilings on advance rates, bid time period, etc. Platforms will generally set rules on the minimum dollar value to auction, as well as the bid rules (ie, can multiple investors co-own).

A big issue is what constraints are put on the seller and his obligors. For example, sellers may only be able to list invoices for sale from recognized obligors.

A typical company may get 80% of the invoice amount upfront, within 24 hours of a bid being accepted. Once the payment is received, the company receives the remaining 20% of the invoice amount, less a discount fee to the buyer and a small transaction fee to the exchange. The discounts on receivables vary with the creditworthiness of both the seller and the account debtor, and the competitiveness of the auction.

Step 1 – Seller Posts Invoice on Exchange Platform

The business will post the invoice and all relevant documentation (purchase orders and so on) on the website and set the thresholds for the following:

  • Minimum advance required (say, typically 70% to 80% of the invoice value, exchanges will set the maximum amount available)
  • Maximum finance fee payable (say, 2% of the value of the invoice per 30 days)
  • Auction duration (one day, two days, etc.) Exchanges can set a max time limit.

Step 2 – Investors Bid
There are three possible outcomes depending on the mechanics of the Exchange:

  1. An investor accepts the sellers terms immediately, the auction is automatically closed and other bids will be deemed to have failed
  2. There is a bid process by investors and the auction will run its course based on the duration. At the end, the bid that comes closest to the sellers parameters will win.
  3. No bids are made by investors, resulting in a failed auction.


Step 3- Paying the Investors after the Obligor pays on Value Date
When the buyer or obligor customer pays the amount due, it is paid into an escrow account at the exchange. The Exchange will maintain dominion over funds in order to satisfy Investor concerns around dilution.

Where the credit customer pays after more than the value date period, the fee payable is increased to the finance provider and so the business will receive correspondingly less.

If you are interested in a more detailed review on Electronic Invoice Marketplaces – To Sell or Not To Sell? and the players, please visit here.

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First Voice

  1. Chris Dark:

    It’s a really interesting space (both this part and the wider space of supplier liquidity). Bottom line though for selling invoices on a marketplace is that there is still opacity between A/R and A/P – i.e. you mention ‘over-inflating of invoices’ in the article – which cannot happen if you know the invoice is Approved A/P by whichever buyer it was sent to. Knowing this information automatically (which most marketplaces do not) allows transparency between A/R and A/P which enables paradigm shift in the rates that can be offered to suppliers for accelerating 100% of their receivable. Both SCF (dominated by major banks) and working capital marketplaces like C2FO do this at large scale, and they both reduce the supplier’s cost base as the rates are below the suppliers alternative cost to borrow.

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