This section looks at the possible options for MSMEs to secure liquidity by using financing based on both delinquent and non-matured receivables. As such, this chapter partly focuses on receivables that are not non-performing. Asset-based finance using accounts receivable can reduce the likelihood of the underlying receivable becoming non-performing. This section shows the characteristics and nature of the invoice trading model as a market-based solution, in particular in view of the experiences of European countries with well-developed markets of this type. Some outstanding issues with the regulatory framework have also been identified that can inform the development and implementation of similar solutions in Serbia.
INVOICE TRADING MODEL AS A MARKET-BASED SOLUTION
Many financing options have long been available that reduce the impact of non-performing trade receivables on the side of both creditors and debtors. These financial instruments, however, are mainly tailored to the needs of large companies, and MSMEs have rarely been able to access these sources of finance.[1] Nevertheless, recent years have seen substantial innovation when it comes to financial services adjusted to the needs of MSMEs. These are digital solutions that, on the one hand, simplify the steps required to access or approve receivables-based financing, and, on the other, secure better financing conditions for MSMEs. Foremost amongst these are financial services based on information technology offered by ‘fintech’ companies.[2]
Fintech services can be grouped under alternative or non-bank finance in that they are not provided by banks and other mainstream financial intermediaries. Alternative finance involves a broad range of financial services, which can be broadly divided into: 1) debt financing; 2) equity financing; and 3) non-investment financing models.[3] Debt financing is most commonly used to finance accounts receivable arising from commercial transactions between creditors and debtors. Here, investors (both institutional/corporate ones and private individuals) extend finance to MSMEs as loans or by purchasing debt, and the intermediary facilitating the financing is an online platform (or financial service provider) that matches creditors with investors and assumes responsibility for all financing actions.[4]
The invoice trading is the financial service linked the most closely to financing creditors’ accounts receivable. The invoice trading model is a form of alternative online receivables-based MSME financing. Invoice trading usually entails financing of receivables where investors (private individuals and institutional investors) purchase invoices from a business at a discount.[5]
Invoice trading platforms offer three main models of this service: 1) marketplace; 2) direct purchase; and 3) supply chain financing. In the first case, the platforms match companies with investors and at times organise auctions where potential investors in invoices can bid for them. Here, the platforms act as market operators and are not directly involved in the invoice financing transaction. In the second case, platforms directly buy invoices from creditors; most of these platforms have agreements with institutional investors that finance the purchases. The platforms here buy the accounts receivable. Lastly, in the third case, supply chain financing platforms offer their services mainly to large firms that have debts arising from commercial transactions. These companies allow their suppliers to transfer invoices to investors accredited on the platforms.
The invoice trading process is structured as follows:
1. A business (creditor) applies online to become an approved member of the invoice trading platform.
2. Once approved, a client bank account is set up and the business can sell an invoice (as small as €1,000 and as large as €1 million or more) on the invoice trading platform.
3. The invoice trading company electronically verifies the invoice to determine whether it is authentic, and the receivable actually exists. Once verified, the invoice is sold on the platform, where multiple investors buy slices of the invoice.
4. The business receives funds in its account as an advance up to 90 percent of the invoice face value within 24 to 48 hours.
5. When the end debtor pays its invoice into the client bank account, the invoice trading platform makes the remaining balance available to the business, minus the platform’s fees.[6]
Invoice trading is very similar to standard factoring. The financing consists of the purchase of trade receivables by investors at a discount. Invoice trading is different from factoring in that it takes place via an online platform and the creditor sells its receivables in an auction, generally to a large number of investors that buy ‘slices’ of the invoice and so finance the receivable. If the platform takes on the role of marketplace in these transactions, rather than taking part directly in receivables purchasing, the service involved is not factoring. Rather, in this case the platform matches the supply of receivables with demand for them and brings together creditors and investors to finance the receivables. However, when the platform directly purchases receivables from creditors, this can be construed as factoring and the platform must meet the requirements for providing this service. Invoice trading can here be seen as recourse factoring, and the creditor (assignor) is liable to the platform for collecting the receivables. Further, supply chain financing for debtors can be considered reverse factoring if, by taking on an invoice from a debtor, the platform also takes on its liability towards creditors, whereby it can collect the amount from the debtor within the contracted period, as regulated by Serbian law (Article 18 FL).
Since the receivable is sold to the investor(s) that make the highest bid, a creditor seeking finance using invoice training may get favourable terms, depending on how collectable the debt is and other key aspects (e.g. its debtor’s creditworthiness, operating performance, and the like). This means that invoice trading platforms may address issues with the Serbian receivables market by offering creditors opportunities to sell their invoices at higher prices.
RISKS ASSOCIATED WITH THE INVOICE TRADING MODEL
Invoice trading entails risks that are generally associated with receivables. As such, any receivables financing platform ought to address the principal hazards involving this type of transaction:
– fraud risk: the risk that the purchase order or invoice presented for trading may be counterfeit;
– receivable title risk: the risk that the creditor may have already assigned or pledged the receivable to another investor or financial institution;
– receivable transfer risk: the risk that applicable law may not allow the investor to take a good and marketable title to the receivable, free and clear of third-party claims, or that it may require the investor to take actions they were not aware they were required to take;
– dispute risk: the risk that the debtor (the buyer in the commercial transaction) may claim that the goods or services did not satisfy the requirements of the commercial transaction, or that the creditor did not perform its obligations arising from the commercial transaction;
– discount risk: the risk that the debtor will not pay the full amount of the invoice for reasons other than the creditor’s performance in connection with the commercial transaction;
– payment delay risk: the risk that the debtor will not pay in a timely manner;
– payment direction risk: the risk that the debtor will make the payment to the creditor or some other party instead of the investor; this is a risk only if the investor has bought the receivable but the debtor is not aware that the investor is now the creditor; and
– debtor credit risk: the risk that the debtor will not pay due to financial inability or insolvency.[7]
According to the Global Alternative Finance Market Benchmarking Report, campaign fraud risk was the single greatest risk factor in invoice trading, with 80 percent of all platforms assessing this risk as ‘very high’ or ‘high’. Notable increase in default was seen as the second highest-ranked risk, with 70 percent of platforms identifying it as ‘very high’ or ‘high’. In the Balkans, cyber-security breach was perceived as the greatest risk, seen by one-third of those polled as ‘very high’ or ‘high’, with change in regulation coming second, rated by no more than 11 percent as ‘low’ or ‘very low’. Interestingly, respondents in the Balkans were not concerned about default or fraud: none of those polled rated these as high risks.[8]
PRECONDITIONS FOR EFFECTIVE INVOICE TRADING
Functionality is a key concern for market-based solutions that can enhance MSME liquidity by offering receivables financing. In both the region and across the EU, fintech solutions, such as invoice trading, came into being only after electronic invoicing was introduced in these countries.[9] [10]
As such, a key precondition for introducing similar options in the Serbian receivables market is the creation of infrastructure that would ensure sufficient reliability in assessing the authenticity of receivables that underlie invoices in both B2B and B2PA transactions. In 2018, Serbia begun this process by setting up the Invoice Register for B2PA transactions, with a centralised e-invoicing system now planned to be introduced for B2PA and B2B transactions.
ELECTRONIC INVOICING IN B2B TRANSACTIONS
Electronic invoices were first recognised as valid accounting documents in the previous iteration of the Accounting Law (Official Gazette of the Republic of Serbia, No. 62/2013). This piece of legislation had required accounting documents (including invoices) to be furnished with an electronic signature or other identifying device, which facilitated the issuance and posting of invoices in Serbia, with specific rules introduced for their electronic storage.[11]
The new Accounting Law, which took effect on 1 January 2020, mandates e-invoicing as of 1 January 2022. The Law requires legal persons and sole traders to issue invoices as accounting documents exclusively in electronic format.[12] The Statement of Explanation accompanying the Accounting Bill noted that this would facilitate invoicing, shorten transaction times, and allow quicker VAT refunds.[13]
A special piece of legislation will be enacted to regulate e-invoices. The Electronic Invoicing Law has been approved by the Government and has entered Parliamentary procedure for adoption.[14] The Law envisages staggered entry into effect for different types of transactions. E-invoicing will become mandatory for B2PA transactions on 1 January 2022 and for PA2B transactions on 1 July 2022; in B2B transactions, this requirement will apply from 1 January 2023.[15]
Starting from 1 July 2021, in addition to public-sector entities, VAT payers and other legal persons and sole traders will be able to use e-invoices once the technical requirements for this have been addressed. E-invoicing in B2B transactions will apply only to VAT payers, since the Electronic Invoicing Bill applies only VAT payers, whilst other legal persons and sole traders required to issue or accept invoices, within the meaning of specific legislation, can use the e-invoicing system but are not required to do so.[16]
The new system will entail a centralised electronic invoice clearing arrangement. It will be managed by the Ministry of Finance, which will play the role of ‘central information intermediary’, and facilitate sending, receiving, recording, processing, and retention of e-invoices. Whilst the Ministry of Finance will be the central information intermediary, the Electronic Invoicing Bill envisages other ‘information intermediaries’, businesses that will be licensed by the Ministry of Finance to provide services of issuing, recording, processing, receiving, and retaining e-invoices and any accompanying documentation.[17]
The aim of this initiative is to completely replace paper-based invoices with digital ones, which will be conveyed in a dematerialised fashion through a centralised platform from the issuer to the recipient. B2PA invoices will be the first to move to this new arrangement, as businesses are already able to invoice public authorities electronically. According to the Economic Reform Programme, 2021-2023, the shift to e-invoicing will be accompanied by a major outreach and awareness-raising effort spanning all of 2021 to help businesses change over to the new system.[18] Since the Electronic Invoicing Bill envisages later entry into effect of the various requirements, time limits in the implementation plan are expected to shift similarly.
Table 12. Steps to be taken by the Ministry of Finance in introducing e-invoicing, according to the Draft Economic Reform Programme, 2021-2023[19]
| Planned activities to introduce e-invoicing | 2021 | 2022 | ||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| Adoption of legislative framework for e-invoicing | x | x | x | x | ||||
| Roll-out of a centralised e-invoicing platform | x | x | ||||||
| Extension of e-invoicing to cover all businesses | x | x | x | x | ||||
| Outreach and awareness-raising of e-invoicing platform users to facilitate shift to new system | x | x | x | x | ||||
INVOICE REGISTER FOR B2PA TRANSACTIONS
| In 2017, the Serbian Parliament adopted amendments to the Late Payment Law that introduced mandatory registration of invoices and payment orders in B2PA transactions. This requirement entered into effect on 1 March 2018, since when invoices and payment orders have had to be registered with the Central Invoice Register maintained by the Treasury Administration at the Ministry of Finance.
The Central Invoice Register is a centralised information system used to keep records of all invoices and other payment orders issued by businesses to public authorities. The Register is accessible to all creditors and debtors and permits entry and review of data on B2PA transactions where public authorities are debtors. The system allows users to track each B2PA invoice in terms of whether and when it was registered, as well as whether it has been paid. The Register was introduced in 2018. The 2017 amendments to the Late Payment Law set out the rationale for introducing the Register. Its stated purpose is to facilitate review of B2PA receivables, with private creditors having an interest to register the invoices and other payment orders due to the increased efficiency and greater certainty of payment. For their part, debtors may inspect each invoice for accuracy and pay only if the invoice has been duly registered, meaning if the registered invoice corresponds to the invoice or payment order actually presented for payment. This ensures greater transparency of B2PA receivables and the liabilities of public authorities in these transactions. Currently, the registration requirement applies to invoices and other payment orders where payment is made from accounts managed by the Treasury Administration. Once the requisite technical conditions are in place, the requirement will be extended to also cover invoices and other payment orders issued to other public-sector entities which use commercial banks for their payment operations. According to the latest set of amendments to the Late Payment Law, all invoices and payment orders issued to public authorities that use accounts managed by the Treasury Administration will have to be in electronic format as of 1 July 2021. Other public-sector entities that use commercial banks will be subject to this requirement once the necessary technical conditions are in place. |
OUTSTANDING REGULATORY ISSUES FOR RECEIVABLES FINANCING IN SERBIA
The Serbian legal system recognises traditional financing offered by banks and other financial services providers. Receivables financing, either through their sale or extension of finance with receivables used as collateral, outside of mainstream options (such as loans, factoring, bill of exchange discounting, and the like) poses a number of regulatory questions, and the answers to them will, in effect, determine whether these new MSME financing options can actually become viable and develop further.
Is a receivables marketplace a capital market within the meaning of the Capital Market Law?
One option for an organised and efficient venue for receivables trading that brings together MSMEs and debt buyers would be a receivables marketplace. For accounting purposes, short-term accounts receivable are financial instruments with a maturity date of up to one year from initial recognition.[20] The CML envisages secondary trading in financial instruments,[21] and so there ought to be clarity as to whether the CML would apply to such an organised market. The definition of financial instruments from Article 2 CML does not explicitly include receivables arising from commercial transactions, and so it seems that the commercial receivables marketplace should remain outside the scope of this law.
Should a platform that facilitates receivables financing through sale or receivables-based lending be subject to specific regulation?
Intermediation between creditors and investors could potentially be considered financial intermediation or provision of financial services other than those offered by monetary institutions or primarily related to financing, other than lending.[22] These activities include factoring. In that case, platforms that exclusively match creditors that sell their receivables and investors that finance them should not be considered financial intermediaries in the same way as banks or factoring companies.[23] However, platforms that would directly purchase receivables arising from commercial transactions would be engaging in factoring if the receivables were not matured, and would as such have to abide by the requirements of the FL.[24] Platforms that would purchase matured receivables would not be engaging in a specifically regulated activity and could potentially be grouped in the class of collection agencies and credit bureaus.[25]
Do platforms that facilitate receivables financing need a licence from an appropriate authority for that activity?
Whilst facilitating receivables financing, a platform could conceivably engage in a regulated activity (as a bank, factoring company, investment firm, etc.) that require a licence from an appropriate authority and would therefore have to obtain such a licence before beginning operations. As such, these platforms could not lend, since this activity is reserved solely for banks and other legally authorised entities (such as payment institutions),[26] as stipulated by the Banking Law.[27] A platform could lend sporadically to entities it regularly does business with, but could not have lending as its core activity, since it would then be classified as a lender.[28] As for factoring, if a platform acted as a factor in receivables purchasing transactions, a platform would have to meet the requirements of the FL and receive approval from the Ministry of Finance.[29]
Are platforms that facilitate receivables trading subject to AML/CFT regulations?
According to Article 4 of the Law on the Prevention of Money Laundering and Combating the Financing of Terrorism,[30] AML/CFT requirements apply to factoring companies. Therefore, given the current legislative environment, only platforms intending to provide factoring services or perform other activities envisaged by AML/CFT regulations would be subject to these rules. Other platforms would not face any such requirements on condition they did not perform any of the activities that would place them under the scope of the AML/CFT law.
Are data processed by the platform subject to the Personal Data Protection Law?
‘Personal data’ means any and all information relating to an identified or identifiable natural person, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person. A platform would be deemed to be ‘processing’ personal data if it performed collection, recording, organisation, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, reproduction, alignment or combination, restriction, erasure or destruction of such data.[31] As such, the Personal Data Protection Law would apply to platforms, for instance with regard to personal information relating to individuals who are debtors in commercial transactions.
Will platforms be allowed to use information from the e-invoicing system in receivables financing?
The Electronic Invoicing Bill raises two questions about the use of information from the e-invoicing system. Firstly, whether information maintained in the e-invoicing system will be available to third parties at all, and, secondly, what protection arrangements will apply to personal data in the e-invoicing system. According to Article 15 of the Electronic Invoicing Bill, the Ministry of Finance, information intermediaries, and entities authorised to access the e-invoicing system are required to process personal data only for purposes of the invoicing and protect them as envisaged by the Personal Data Protection Law. Hence, it is unclear whether the restriction on processing data from the e-invoicing system also extends to businesses (creditors in B2B transactions), since they are amongst the persons to which data from the e-invoices pertain. Moreover, even if this restriction is not imposed for businesses, any transfer or processing of information maintained in the e-invoicing system would have to comply with the Personal Data Protection Law.
What are the potential restrictions for facilitating sale of receivables in Serbia?
Serbian foreign currency operations rules pose one restriction on the volume of financing that could be secured through invoice trading platforms. The Foreign Exchange Operations Law (‘FX Law’)[32] permits use of foreign financial loans only for payment of imported goods and services and financing of investment abroad, as performed by Serbian residents as part of their business activities, as well as for repayment (refinancing) of outstanding foreign loans. Residents may take foreign financial loans for other purposes as regulated by the NBS.[33] An NBS decision provides a detailed definition of conditions under which Serbian residents are able to take out foreign credit and loans.[34]
These requirements are highly restrictive and generally prevent Serbian residents from taking on debt from non-residents. In addition, any loan a resident receives from a non-resident must be notified to the NBS, and the foreign currency proceeds of a loan disbursed from abroad cannot be used until the loan has been registered.[35] This makes it clear that creditors would be limited only to financing available from Serbian residents. Another limitation stemming from the FX Law is that foreign platforms would not be able to effectively facilitate receivables financing for Serbian residents.
REGULATORY ARRANGEMENTS IN OTHER JURISDICTIONS
Receivables Exchange, the first online invoice trading platform, became operational in 2007.[36] In Europe, the UK has the largest market size, and the country’s platforms initially recorded the greatest market share in terms of the volume of trading.[37] Recently, however, Debitos, established in Germany in 2010, has been seeing greater trading volume than UK-based platforms.[38] Moreover, the Cambridge study has found the Dutch market was second-largest (valued at $1.8 billion in 2018), with Germany and France coming third and fourth, respectively.[39]
In other countries, receivables trading platforms first began to emerge in 2011, with this activity in time being recognised as an opportunity to provide financing models suited to MSMEs. Most platforms whose business models are analysed in this study base their operations on short-term liquidity financing for MSMEs through purchasing receivables or discounting invoices issued by MSMEs in commercial B2B transactions.
The table below provides an overview of financing platforms based on the availability of peer-to-peer (P2P) finance in European markets and the presence of the platforms in the individual countries. The primary selection criterion was whether the platforms offered invoice trading.[40] Business models were assessed through seven dimensions: 1) registration formalities; 2) financing costs; 3) requirements for registration applicable to users (creditors); 4) requirements applicable to invoices/receivables; 5) how debtors were notified of the purchase of the receivable/invoice discount financing; 6) amount of financing available; and 7) other relevant characteristics.
The data about how the platforms operate and what services they provide revealed differences between both markets and individual financing facilitators. The review identified: 1) financial services offered by the platforms; 2) types of receivables that can be financed; 3) specific services provided by the platforms; and 4) investors active in the invoice trading market. The review focused on platforms that purchase receivables on their own behalf and those matching MSME creditors and potential investors intending to purchase receivables. All platforms offered trading in invoices or non-matured collectable receivables, generally with maturity periods exceeding 30 days.
The review of business models suggests that discount rates depend on multiple creditor and debtor characteristics. As a rule, they include: debtor’s creditworthiness, amount of the invoice, and maturity date. Another important consideration is the type of service provided by the platform. Here, auction-based platforms generally offer lower invoice discounts (i.e. finance the entire amount of the receivable less fees and investor commission) than factoring providers (where the financing limit is generally under 80 to 90 percent of the invoiced amount). A summary of the invoice trading platforms reviewed is shown in Table 13 below.
Table 13. Comparative overview of invoice trading platforms in the EU[41]
| Country | Name | Registration formalities | Financing costs | Eligibility requirements | Receivable/invoice requirements | Receivable/invoice verification | Debtor notification | Amount financed | Other relevant features |
| United Kingdom | MatchPlace | N/A | 1) Invoice processing fee of between 0.75% and 2.5% of total invoice amount;
2) payment processing fee of £15; and 3) finance cost of 0.05% to 0.3% per day of the cash advance amount for the duration of the cash advance. |
1) LLCs and public companies registered in the UK;
2) demonstrated business activity of at least 2 years. |
1) Minimum amount £20,000;
2) minimum residual maturity 15 days. |
Yes | Receivables are assigned without debtor notification. | Up to 90% of invoice amount. | Private investors, institutional investors, banks, and businesses can register as investors. After registration, user may act as both assignor and investor. |
| Investly | Company should provide statements from all banks where it has accounts. | User pays fee of between 1.65% and 2.6% of invoice amount for each invoice sold at auction. | 1) Company must be trading for at least 6 months;
2) based in UK; 3) good credit standing; 4) no ongoing court cases that could affect its operations significantly. |
1) Goods and services have been delivered;
2) invoice has not reached due date; 3) payment term between 15 and 180 days. |
Direct communication between platform and debtor. Special procedure possible for ‘confidential’ financing | Platform contacts debtor directly with creditor approval. | Up to 100% of invoice amount, less costs of financing. | Sale by auction. | |
| MarketFinance | N/A | Two fee options: 1) contract option (fixed monthly fee, listing, and interest finance);
2) pay-as-you go (service fee is percentage of invoice face value plus listing fee and finance fee). |
1) LLCs based in the UK; minimum turnover £100,000. | N/A | 1) Direct contact for first purchase of invoice for each debtor;
2) each subsequent invoice for same debtor verified automatically by e-mail. |
Debtor notified in the course of invoice validation. | Up to 90% of invoice amount. | Platform offers re-purchase of receivables 10 days past due or debt repayment plan. Creditor is required to repay debt after 17 days after maturity on payment of fixed fee. | |
| Italy | WorkInvoice | Company supplies information from its corporate byelaws and debtor data. | Fixed service charge €30 with additional commission charged for each successful invoice auction | All MSMEs can register. | Individual receivables must have a minimum value of €10,000. | N/A | N/A | Up to 100% of invoice amount. | Receivables are sold as non-recourse factoring. |
| Credimi | N/A | User pays two types of fees:
1) processing fee for invoice purchases; and 2) service fees. |
1) Annual turnover and length of trading;
2) form of incorporation; 3) registered office; and 4) activity |
Minimum invoice value is €2 million | N/A | Platform notifies debtor of assignment but also has a confidential mode where debtor is not informed. | Up to 100% of invoice amount. | Creditor guarantees all receivables assigned are liquid and collectable on maturity, except if debtor becomes insolvent. If creditors’ claims prove unfounded, Credimi can require reimbursement, along with interest and commission. | |
| CashInvoice | N/A | Assignor pays annual contract fee, financing fee of between 0.5% and 3% of financing +VAT, and monthly interest of 0.5% to 0.7%, plus additional costs depending on type of financing. | 1) public companies and LLCs registered in Italy
2) that issue invoices worth over €500,000 annually; and 3) have at least 3 past financial statements. |
1) Term must be over 30 days;
2) amount must be over €1 million. |
N/A | Platform notifies debtor of assignment only for assignment with recourse. | Payment of up to 90% of nominal value of invoice in event of non-recourse factoring. | Financing is not available to companies in tobacco, gaming, and construction sectors. | |
| CashMe | Company supplies:
1) business identifying information; 2) identity and personal identification document of legal representative; 3) invoice number; 4) invoice amount; 5) due date; 6) debtor information; 7) average number of days taken by debtor to pay in commercial transactions; 8) invoice file; and 9) sale agreement. |
1) one-off access fee;
2) commission of 0.6% of value of the receivable; 3) financing fee of 1% to 2% of value of the receivable. |
1) Company must have submitted at least one financial statement and
2) has annual turnover of at least €500,000. |
Debtors in commercial transactions registered in the EU and having good credit standing. | N/A | Platform notifies debtor of sale of receivable. | Financing always equals 90% of price at auction, with remainder paid once receivable is collected. | Non-recourse financing by investor in event of debtor insolvency. Where debtor does not pay within 4 months of due date, investor is not required to pay remainder of amount to original creditor, which retains deposit of 90% of value of the receivable. | |
| Crowdcity | N/A | N/A | Credit brokerage assesses compliance with eligibility requirements. | 1) Receivables with nominal value of at least €1,000 with
2) debtors having turnover of at least €5 million. |
N/A | Platform notifies debtor of assignment only by e-mail. | 90% of purchase price paid when contract is entered into, remainder when receivable is collected. | N/A | |
| France | FinexKap | Company pre-registers by providing information on its form of incorporation and length of trading. | Financing fee equal to 10%-20% of nominal value of receivable. Fee in event of debtor default amounts to 12% of value at annual level. | Two types of conditions: pre-registration (form of incorporation, activity, and financial position) and type of debtor (financial considerations and invoicing process). Creditor must be a company based in the European Economic Area. | Nominal amount of first invoice financed must not be lower than €1,000 inclusive of VAT. | Platform collects invoice information in direct contact with debtor. | Platform contacts debtor by e-mail or post to provide new payment information. | Face value of receivable less fees charged to creditor. | FinexKap can refuse to finance a creditor’s receivables if it has already taken on a quantity of receivables with the same debtor, regardless of other purchase conditions. FinexKap allows creditors to buy back debt within 35 days of due date. If receivable cannot be collected due to debtor insolvency, the collection will be managed by FinexKap and the assignor will face a cost of 4% of the nominal value of the invoice. |
| Créancio | N/A | Platform services fee of at least 0.49% of nominal value of invoice (including VAT). | Clients must have an annual turnover of at least €300,000. | N/A | N/A | Platform can notify debtor of assignment of receivable. | Between 80% and 95% of invoice amount. | N/A | |
| Spain | NoviCap | Company has to submit:
1) proof of regular payment of taxes not older than one month; 2) proof of regular payment of social contributions not older than one month; 3) personal identity document of representative; 4) statement from debtor’s bank indicating account for payment; 5) information on collection of receivables from key clients; 6) information about other types of financing used by the company; 7) copy of invoice and bill of lading for receivables with underlying goods supply contracts. Sale agreements are optional. |
1) Annual financing interest of between 1% and 9%;
2) access, user assessment, financing management, and risk assessment fee; 3) service charge of 0.95% of the invoice amount. In event of late payment, creditor pays costs of delay. |
Companies that invoice private-sector firms with revenue of at least €3 million or public sector. | N/A | N/A | Creditor notifies debtor of assignment. | Up to 90% of invoice amount. Remaining sum paid after debt is collected from debtor. | Receivables paid exclusively into NoviCap account. Investors based in the UK and Spain can finance invoices by purchasing ‘slices’. If a debtor does not pay an invoice, the creditor is responsible for payment; in the event of delinquency, creditor pays costs of delay. |
| Finanzarel | Registration requires:
1) national identification document of applicant; 2) proof of ownership of bank account; 3) applicant’s power of attorney; and 4) company articles of association. |
Platform charges a monthly commission of 0.25% of total value of invoices put up for auction. Commission is reduced if company puts up 10 or more invoices for auction annually. | 1) Annual creditor turnover €100.000;
2) annual debtor turnover €10 million; 3) debtor and creditor must be doing business for more than 6 months; 4) invoice issued as part of creditor’s regular business operations. |
Receivables must be worth between €3,000 and €1 million. | Invoice can be purchased without proof of authenticity from debtor. This may result in higher financing costs. | Financing can be provided without notification of debtor. | N/A | Platform offers special service to finance prompt payment by debtor; this is termed ‘confirming’. | |
| Circulantis | Companies can register as assignors, which allows access to auction information, and ‘active assignors’, which allows organising actions to raise working capital using invoices or bills of exchange. | Commission charged to assignors depends on payment terms, but may not be lower than €50. For maturities of up to 30 days, commission rate is 0.60%, rising to 0.95% for maturities of up to 90 days. Rate increases by 0.10% for every additional 30 days thereafter. | Services are available to:
1) tax residents; 2) persons registered with appropriate register; and 3) persons with Spanish bank accounts. |
1) Debtor must have been trading for at least 3 years;
2) credit rating score must be at least 7; 3) must have positive solvency review from platform’s partner, Informa D&B. |
N/A | N/A | Auction is closed where:
1) financing set by creditor when registering auction is reached, regardless of whether interest rate sought is achieved; or 2) both interest rate and financing sought are achieved. |
Minimum investment is €50. | |
| Inversa | N/A | Assignor pays:
1) initial commission of 2% of nominal receivable amount per annum, which may not be less than €200 inclusive of VAT; 2) fee for management and disclosure of commercial documents of 0.25% of nominal receivable amount per month, which may not be less than €10 inclusive of VAT and is chargeable only on successful auctions; 3) default management fee of 2% of nominal transaction amount, which may not be less than €100 inclusive of VAT. |
Company must pass ‘reliability test’, which is a precondition for registration and consists of:
1) assessment of external credit report; 2) financial assessment; and 3) assessment of collectability of receivables previously assigned through the platform. |
Nominal amount of invoice or bill of exchange must be between €10,000 and €100,000. | For assignment of receivables based on invoices and bills of exchange containing the wording ‘not on order’, assignor must notify debtor of assignment, or platform does so but assignor pays costs of notification. | Platform seeks certification of authenticity for all financial instruments traded on the platform (invoices, bills of exchange). | If auction is successful, platform pays 90% of amount raised at auction into assignor’s account, and keeps 10% in its user account until debtor has paid. | Assignor is required to buy back receivable on expiry of 30 days from start of default; platform may use assignor’s available balance to recoup debt. | |
| Germany | Debitos | There is no available information about invoice trading as a business model in the German market. However, the German alternative finance market is one of Europe’s largest, passing the $1 billion benchmark in 2018. Germany was the second largest market in Europe by size, and fourth globally by number of online alternative finance platforms, after China, the US and the UK. The country’s largest platform is Debitos, which offers a combination of factoring and peer-to-peer lending, and adjusts these instruments for the non-performing and non-collectable receivables market. | |||||||
| Serbia | FinSpot | When registering account, company supplies:
1) trading name; 2) taxpayer ID number; and 3) registration number |
Cost of financing is some 24% of nominal value of invoice. | Companies, sole traders, or banks registered in Serbia or abroad may use the platform. | Debtor must have good credit standing. | N/A | After financing is approved, platform (or assignor) notifies debtor of change of creditor. | Depends on credit assessment used to set financing limit. | Finspot offers domestic and international factoring with or without recourse. |
[1] Botta, A., Höll, R., Jain, R., Shah, N., Hau, L. 2020. Supply-chain finance: A case of convergent evolution? The 2020 McKinsey Global Payments Report, McKinsey & Company, 19. Available at mckinsey.com/industries/financial-services/our-insights/accelerating-winds-of-change-in-global-payments.
[2] Fintech companies can be described as firms that provide financial services based on information and communication technology. See Schena, C., Tanda, A., Arlotta, C., Potenza, G. 2018. The development of FinTech: Opportunities and risks for the financial industry in the digital age. Commissione Nazionale Per Le Societa’ E La Borsa, 8. Available at consob.it/web/consob-and-its-activities/fintech-series.
[3] Cambridge Centre for Alternative Finance. 2020. The Global Alternative Finance Market Benchmarking Report: Trends, Opportunities and Challenges for Lending, Equity, and Non-Investment Alternative Finance Models, 30. Available at jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/the-global-alternative-finance-market-benchmarking-report.
[4] Ibid.
[5] Ibid, 31.
[6] MarketFinance, Invoice Trading Explained. Available at marketfinance.com/business-finance/what-is-invoice-trading.
[7] Incomlend, What are the Risks of Invoice Finance and Invoice Trading? Available at incomlend.com/what-are-the-risks-of-invoice-finance-and-invoice-trading.
[8] Cambridge Centre for Alternative Finance. 2020. 98.
[9] Koch, B. 2019. The E-Invoicing Journey 2019-2025, Billentis, 25. Available at billentis.com/The_einvoicing_journey_2019-2025.pdf.
[10] One recent example is that of Croatia, which instituted an e-invoicing system in 2016 to allow companies to issue standardised electronic invoices to public-sector entities through an online platform (E-Račun, or ‘E-Invoice’). The platform allowed the existing financial market infrastructure to be harnessed to create new, alternative sources of finance for MSMEs. In this context, in late 2018 the European Bank for Reconstruction and Development (EBRD) financed an assessment of the suitability of e-Račun to register accounts receivable, or electronic invoices, in the private sector with a view to allowing these to be traded. The project aimed at exploring the establishment of a new market category for e-invoices, receivables, and other potential alternative cash flow financing instruments for SMEs. Similarly to Serbia, the factoring market was found to be contracting, which was creating an immediate demand for a new framework and products for cash flow financing for SMEs based on best practices and international experiences, e.g. by creating a trading platform for e-invoices building on an established framework, thereby enabling multilateral trading of receivables. European Bank for Reconstruction and Development. 2018. Croatia: Establishing a receivable/e-invoice trading platform to strengthen access to finance for SMEs. Available at ebrd.com.
[11] Interpretive release of the Ministry of Finance and the Ministry of Trade, Tourism and Telecommunications with regard to the issuance and posting of physical and electronic invoices not furnished with official stamp and signature, Ministry of Finance and Ministry of Trade, Tourism and Telecommunications, 12 December 2017. Available at
media.srbija.gov.rs/medsrp/dokumenti/fakture-u-papirnom-el.obliku-bez-pecata-potpisa2017.pdf.
[12] Article 9[3] and Article 64[3] of the Accounting Law (Official Gazette of the Republic of Serbia, No. 73/2019).
[13] Accounting Bill (Official Gazette of the Republic of Serbia, No. 73/2019). Available at parlament.gov.rs/upload/archive/files/cir/pdf/predlozi_zakona/2019/2368-19.pdf.
[14] Electronic Invoicing Bill, 2 April 2021. Available at parlament.gov.rs/upload/archive/files/cir/pdf/predlozi_zakona/2021/582-21.pdf.
[15] The requirement for public-sector entities to accept and retain e-invoices and issue e-invoices to other public-sector entities will enter into effect on 1 January 2022. Public-sector entities will be required to issue e-invoices to businesses from 1 July 2022. Public-sector entities will be required to assess VAT electronically from 1 January 2022. Businesses will be required to invoice public-sector entities electronically from 1 January 2022. Businesses will be required to accept and retain e-invoices issued by public-sector entities and other businesses from 1 July 2022. E-invoicing in B2B transactions will become mandatory on 1 January 2023. See Article 24, Electronic Invoicing Bill.
[16] Article 5[4] of the Electronic Invoicing Bill.
[17] Article 2[1]6) of the Electronic Invoicing Bill.
[18] Ministry of Finance, 2020. Draft Economic Reform Programme, 2021-2023, 72, 109-110. Available at mfin.gov.rs/wp-content/uploads/2020/12/ERP-2021-2023_Nacrt-za-javnu-raspravu.pdf.
[19] Ibid, 110.
[20] Article 29, Regulation on micro and other legal entities.
[21] Article 1 of the Capital Market Law (Official Gazette of the Republic of Serbia, Nos. 31/2011, 112/2015, 108/2016, and 9/2020), referred to as ‘CML’ throughout.
[22] This activity is defined under Class 64.99, Other financial service activities, except insurance and pension funding n.e.c., pursuant to the Government Order on Classification of Activities (Official Gazette of the Republic of Serbia, No. 54/2010).
[23] Schena, C. Tanda, A., Arlotta, C., Potenza, G. 2018. 31.
[24] This activity is currently performed in Serbia by Finspot, which is registered as a provider of factoring services within the meaning of the FL. See finspot.rs.
[25] This activity is defined under Class 82.91, Activities of collection agencies and credit bureaus, pursuant to the Government Order on Classification of Activities, and is currently the predominant activity of receivables purchasing agencies.
[26] Article 95[2] of the Payment Services Law (Official Gazette of the Republic of Serbia, Nos. 139/2014 and 44/2018).
[27] Article 5[2] of the Banking Law (Official Gazette of the Republic of Serbia, Nos. 107/2005, 91/2010, and 14/2015).
[28] Magdelinić, S. 2007. U čemu je razlika između kredita i zajma, Bankarstvo, 1/2, 51. Available at ubs-asb.com/Portals/0/Casopis/2007/1_2/UBS-Bankarstvo-1-2-2007-PO.pdf.
[29] Articles 5 to 10 FL.
[30] Law on the Prevention of Money Laundering and Combating the Financing of Terrorism (Official Gazette of the Republic of Serbia, Nos. 113/2017, 91/2019, and 153/2020).
[31] Art 4[1]1) of the Personal Data Protection Law (Official Gazette of the Republic of Serbia, No. 87/2018).
[32] Foreign Exchange Operations Law (Official Gazette of the Republic of Serbia, Nos. 62/2006, 31/2011, 119/2012, 139/2014, and 30/2018), referred to as ‘FX Law’ throughout.
[33] Article 21 FX Law.
[34] Decision on the terms and conditions of using foreign financial credits for purposes set out in Article 21, Paragraph 2 of the Foreign Exchange Operations Law (Official Gazette of the Republic of Serbia, Nos. 6/2013, 74/2013, and 32/2018).
[35] Decision on reporting on foreign credit transactions (Official Gazette of the Republic of Serbia, Nos. 56/2013, 4/2015, and 42/2020).
[36] Currently trading as LiquidX. Available at liquidx.com.
[37] These are MarketInvoice (trading as MarketFinance) and PlatformBlack (trading as Sancus.com).
[38] Dziuba, D. 2018. Crowdfunding Platforms in Invoice Trading as Alternative Financial Markets, Roczniki Kolegium Analiz Ekonomicznych, Szkoła Główna Handlowa W Warszawie, br. 49 (Społeczno-ekonomiczne aspekty rozwoju gospodarki cyfrowej: koncepcje zarządzania i bezpieczeństwa), 462. Available at rocznikikae.sgh.waw.pl/p/roczniki_kae_z49_31.pdf.
[39] Cambridge Centre for Alternative Finance. 2020, 26.
[40] This review looked only at platforms for which data were publicly available, so most findings are based on information found on the web sites of financing facilitators operating in selected European countries.
[41] Note: this review is based on data collected from the platforms’ web sites, and does not include legal sources such as national legislation, general and specific terms and conditions, model contracts, agreements, prospectuses, and the like.