Invoice Finance Linked To Customer’s Quality

30 Oct 2020 | 11.25 am

Invoice Finance Linked To Customer’s Quality

Accelerated Payments' novel invoice finance model

30 Oct 2020 | 11.25 am

Ian Duffy laboured in the accountancy vineyard for most of his career. Now he has his own venture, Accelerated Payments, and some serious capital to grow the business

Ian Duffy, founder and chief executive of Accelerated Payments, is very well connected. His contacts book extends to wealthy individuals prepared to invest €100,000, €200,000 or even €500,000 in a loss-making new venture.

Duffy (pictured) inspires confidence because he has presided over some startups that have worked out really well, and he is tapping into a pressing need for some SMEs — instant cash.

He’s not the only family member of an entrepreneurial persuasion. Brothers Mark Duffy (elder) and Greg Duffy (younger) and principals is Sentrio Technologies, a venture established in 1995 that has yet to reward investors. Sentrio’s OnePosting platform, which operates mainly in North America, was established in 1995 and automates receiving invoices from suppliers, sending invoices to customers, or identifying pricing issues on invoices received from suppliers.

Sentrio Technologies has €6.3m capital invested since inception and accumulated losses stood at €8.8m at the end of 2018. Ian Duffy was a director of the venture from the start until he stepped down from the board in 2018. The experience prompted him to look at the opportunity surrounding invoice finance rather than invoice processing, which is the space Accelerated Payments now occupies.

Invoice finance is not new and is widely used for cashflow purposes. Data from the Irish Asset and Invoice Finance Association shows that c.€1.5 billion in invoice finance was in use by Irish companies at any one time during 2019. Accelerated Payments funding was part of that total, though the company’s focus is more on the UK and US than Ireland.

Where Accelerated Payments differs from the normal invoice provider is that it funds receivables on the basis of who is paying the invoice, not the company that issued the invoice. That means it’s not as concerned with financial fundamentals and tying down security on the invoice issuer as traditional invoice funders. So long as the customer is a good credit risk, then Accelerated Payments will advance the cash.

It’s a timely idea, especially given the Covid liquidity crunch facing many companies. Duffy’s venture is well placed to take advantage of demand for alternative credit, though establishing the business hasn’t been cheap, even with a head-start provided by Ian Duffy’s bothers in Sentrio.

Corporate Recovery

In the 1990s, Ian Duffy, now 58, was managing director of watercooler business Aquaporte and soft drink company New Age Beverages, before assuming the COO role with Vision Consulting. That led to a change management function with Anglo Irish Bank, before he jumped back to his accountancy roots with Farrell Grant Sparks in 2007.

At FGS, where he was partner in the corporate recovery and corporate finance unit, Duffy saw at first hand the ravages of the financial crash and he also came across the new ventures emerging from the wreckage.

Duffy’s listing of past and present directorships extends to 46 companies. At many firms he has been drafted in as non-executive board chairman. He currently fills that role at Everseen, ServisBot and Parcel Connect, and he was formerly board chairman with Tapastreet, Xhail, Echogen Power Systems and FeedHenry.

At Cathal McGloin’s Wexford venture FeedHenry, Duffy was chairman when the company was acquired by Red Hat Inc for €63m in September 2014. FeedHenry had equity invested of €7m, so shareholders did very well from that deal. It was through assisting SMEs with funding that Duffy got to know high net worth players, and some of them have backed Duffy’s new venture.

Seed Funding

When Duffy first passed around the hat for Accelerated Payments in the summer of 2018, sums of €500k, €300k, €200k and €100k were raised from four private investors. In April and May 2019, the company obtained €2,050,000 in additional funding. This time a separate private investor parted with €500k, two others invested €300k and €200k, five people each invested €100k and seven more were happy to part with €50k each for Accelerated Payments shares. The most recent allotment was last December, with two more individuals each investing €100k.

None of this funding was obtained through the EIIS tax-break scheme, so it’s all risk capital without any defined commitment for payback. Shareholders will be rewarded when Duffy builds the business to sufficient scale that a larger player in the finance space acquires the upstart.

To smooth the journey to that outcome, Accelerated Payments recently appointed Steve Box as chairman. Box is the former International CEO of Bibby Financial Services and former Global Head of Receivable Finance at HSBC. 

In its accounts filing, Accelerated Payments doesn’t disclose turnover. Duffy says the company financed c. €100m worth of invoices last year and was expecting volume to more than double through 2020. Because of Covid’s disruption to trade, that expectation has been scaled back to €150m to €200m.

Duffy explains that the €1.5m trading loss booked in 2018-19 arose from the company’s ambition to establish a presence not just in Ireland but also in the UK and North America within 24 months of commencing to trade. 

“We want to be experts in our business of selective invoice financing on a non-recourse basis,” says Duffy. “We felt very strongly that the opportunity is in the UK and the US, and the startup losses reflect the costs associated with establishing our platform and building our technology so that it can handle large volumes.”

Customer Types

Sentrio Technologies’ OnePosting service still operates independently in Canada but Duffy notes that most of its business is now focused on supporting Accelerated Payments. 

“We require far less volume by way of customers in order to build a profitable business, because we’re in the business of financing rather than processing invoices,” says Duffy. “The technical requirements are pretty similar, so it made sense to exploit some of the technology that OnePosting had built. If OnePosting hadn’t been there, we would have had to build something similar from scratch and it would have taken us 12 months longer to get to market.”

According to Duffy, Accelerated Payments’ customers span technology, distribution, manufacturing, importers, consulting services and outsourced administration services across borders.

“A good chunk of our book is in US dollars at the moment, with UK companies providing services through their US subsidiaries. In cross-border services, it’s difficult to source invoice finance from high street banks and traditional invoice discounters. That’s exactly the type of business we like. 

“With our funding model, it comes down to the profile of the debtors, and that’s one of the reasons we have an operation in North America. Many of our clients have concentration risk, with maybe fewer than five customers, and that’s not what banks like to see. Clients generally are in the €1m to €10m turnover range, and €50,000 to €500,000 is the typical exposure we have.

“Typical clients are growing quickly and may have had some difficult trading period in the last two or three years. They are in the B2B space and trade with medium to large size entities and state organisations. They require funding where there is a good funding argument in the specifics of a transaction. We can get our heads around that quickly versus having to do a deep analysis on the books and the performance of the company, which is what most of our competitors have to do.”

Charging Model

Accelerated Payments will generally advance 80% of the value of an approved invoice, though the advance can stretch to 90%. The company’s fee is charged on the gross value of the invoice. So for an Irish food company supplying a UK multiple, for example, Accelerated Payments could advance €80,000 on a €100,000 invoice, once the multiple has confirmed that it has received the goods and everything is in order. 

For this €80,000 cash advance, the client is charged 1.5% of the €100,000 invoice amount per month until the invoice is settled. If the multiple pays up in under 30 days, the cost of credit is €1,500, but if the invoice isn’t settled for 60 days the cost of credit increases to €3,000. Annualised out, that’s an interest charge of c.22% p.a.

Pre-Covid, Duffy says his firm’s average receivables duration was 30 to 40 days. “That was lower than we expected. There was plenty of cash in the system coming up to last January and February so debtors were paying on time. That’s slowed a lot now and we’re seeing average receivables duration in the late forties to early fifties.

“That can matter a lot to some firms. If you have to pay salaries on October 30 and you’re not getting paid by your customer until November 13, that gap can be critical. Companies in that situation require access to cash, and that’s what we do.”

Accelerated Payments’ business opportunity is the difference between its cost of credit in the wholesale market (“high single digits”) and what it charges for its invoice finance, with enough left over from paying overheads to turn a profit. Duffy believes his venture should be able to avail of low-cost government wholesale funding, but even without it he sees a bright future.

“Our five year plan was to reach profitability in year four, and even with Covid we should achieve that. We’re very happy with where we are and I think the market likes the flexibility of our product. It’s a simple product for people to understand and it suits companies that are looking to accelerate their business without having to give away significant equity.”

Comments are closed.