Brian Teng and his wife Nalinee gave up their high-paying jobs last year to relocate to Singapore from London with their only child. They decided to catch the crowdfunding wave in Asia and set up InvoiceInterchange — the city state’s first crowdfunding platform for unpaid invoices.
InvoiceInterchange, which has raised $1.6 million on its site, enables companies to auction their invoices to investors. Ordinary investors can choose to buy all or part of the invoices in return for an average interest rate of 14% a year.
“The bidding process and pricing are set in real time. The bidding is entirely transparent,” Teng says. “It is also competitive because investors have to bid strategically to make the most gains out of their investments.”
InvoiceInterchange’s auction process resembles that of eBay. A small and medium-sized enterprise has issued an invoice of $500,000 to a customer that will only pay the amount in 30 days, but the SME needs the funds immediately for daily operational expenses. It auctions the invoice on InvoiceInterchange and offers to pay investors a 5% interest rate. The investors bid to buy the invoice at an interest rate lower than or similar to the offered value. The lowest bidders get to buy the invoice.
According to Teng, InvoiceInterchange takes a 20% commission from investors’ returns and an average of 1.3% of the value of companies’ invoices. In total, it makes an average of 2% of the total value of invoices funded on its site, which would add up to about $32,000 in revenue from its first year of operations.
Investors typically put in a bid of $3,500 for each invoice, while companies take an average of 42 days to return the investment, including interest. Teng claims the fastest auction held on InvoiceInterchange was completed under four minutes.
At present, it has a following of 17 SMEs and 63 investors who are professionals, family offices and high-networth individuals. The youngest investor is 25 years old, while the oldest is 53.
Teng reckons the site’s popularity has to do with the fact that some SMEs are simply too small or young to fit the risk profile of banks. Invoice- Interchange also offers flexibility. “If you go to banks, chances are you will be locked into long-term contracts and need to sell all your invoices. A lot of these customers want the flexibility to sell invoices only when they need to; they don’t want to be tied down to long-term contracts,” he notes.
The start-up also tries to play it safe. InvoiceInterchange only accepts invoices issued to large and creditworthy companies. “An invoice issued to, say, Singapore Telecommunications is something we would accept. We do not take invoices from companies that are making huge losses or have litigation issues,” says Teng, who rejects almost nine out of 10 invoices.
Indeed, banks have also been jumping on the crowdfunding bandwagon. Recently, United Overseas Bank invested US$100 million ($137 million) in Israeli crowdfunding site OurCrowd. Meanwhile, DBS Group Holdings launched an accelerator programme to mentor early- stage fintech start-ups, one of which was InvoiceInterchange.
Teng says banks can benefit from working with crowdfunding start-ups. “Sites such as InvoiceInterchange can serve customers that banks may not be able to serve at this point in time. Over time, we nurture these customers and build their credit history, helping them [solve] cash flow [problems] to fuel business growth,” he explains.
Malaysian-born Teng previously worked at the global banking and marketing departments of HSBC. Nalinee was an IT project manager at his department. Both of them have invested about $100,000 in InvoiceInterchange so far.
Currently, the couple operates InvoiceInterchange from their apartment in Kembangan. But if the start-up takes off, they plan move to a proper office in Singapore and expand to another country in Southeast Asia.
This article appeared in the Enterprise of Issue 722 (April 4) of The Edge Singapore.