Investing in Outstanding Invoices

Investing in Outstanding Invoices.

Last week we suggested that peer to peer lending was not that safe and the Innovation ISA was struggling to take off, we have seen more this week with peer to peer lenders suggesting that financial advisers are not using of recommending them?  We wonder why?  Is it because if the P2P deal fails and a client is ‘out of pocket’ it will be the IFA that is left to pick up the compensation bill as P2P lending is not covered by the Financial Services Compensation Scheme.

This week we have seen yet another firm increasing their marketing with a type of peer to peer lending operation, where you can buy ‘outstanding’ invoices of a business. 

This is commonly known an ‘factoring’ where businesses sell their outstanding invoices at a discount to receive payment early, this improving/protecting cash flow and the new ‘owner’ of the debt then pursues recovery i.e. payment of the debt.  There are many professional ‘factoring’ businesses in the UK

In short, a trading business has launched a service whereby private investors can get involved in buying/investing in ‘invoices due’

Comment

A disaster waiting to happen.  As you know, we say ‘you can only con a greedy person’ and if invoices are sold to you say with a 10% or 20% invoice discount i.e. that is your return when/if the invoice is settled in full, you can guess what may happy.  It is all about the quality of

1. The supplier of the goods/service – did they do a good job? Is there invoice likely to be paid?
2. The quality of the debtor i.e. the person or organisation that owes the money i.e. has been invoiced. Will they pay? Can they afford to pay?

If the invoice was a good one why would the business sell it on?  High risk, high rewards, high stakes.