The government is investing £5 million of taxpayers' money in an online invoice purchasing scheme for SMEs.
As part of the government’s Business Finance Partnership, the Department for Business Innovation and Skills (BIS) is committing £5 million as an "investor member" on MarketInvoice.com.
The government is expecting to get yearly returns of around 10-12 percent. With funds on MarketInvoice "recycled" every 45 days, this £5 million commitment "will equate to approximately £40 million in investment to SMEs over the next year", claimed MarketInvoice.
MarketInvoice enables SMEs to sell their long-dated invoices to a pool of investors, who in return for advancing most of the funds up-front, take a small discount fee in return.
The government cash is said to have already benefitted 10 businesses in fashion retail, marketing, software and telecommunications.
Since its launch in February 2011, MarketInvoice claims it has channelled more than £65 million to UK SMEs - £42 million of which was in the last 12 months.
Unlike traditional invoice discounting facilities - like many "factoring" companies, for instance - businesses using MarketInvoice are not tied into long exclusive contracts, nor are they required to sell their entire sales ledger as part of the agreement.
SMEs using MarketInvoice can sell their invoices selectively, as and when they choose, confidentially and with no personal guarantees required - which may or not seem risky to taxpayers financing the £5 million government injection.
The Business Finance Partnership was set up to boost business funding via non-bank lending channels. As part of the initiative, around £87 million has been earmarked for investment through non-traditional channels of funding, such as MarketInvoice.
MarketInvoice co-founder Anil Stocker said: "We hear every day how UK SMEs are finding it increasingly difficult to access critical working capital and therefore the government’s investment via our platform is both a hugely positive and timely development."
Businesses sign up to MarketInvoice and then list "for-sale" invoices due to "blue-chip debtors" with payment terms of between 30-120 days. Investors compete to provide the funding at the lowest cost, with winning buyers advancing cash to SMEs within 24 hours.
Investors make their returns by charging SMEs a small discount fee on the invoice sold of approximately 1 percent, while MarketInvoice charges sellers a one off, up front service charge of between 0.5-2.5 percent of the invoice sold.