Join our community of smart investors

How SMEs can profit from Platform Black

Platform Black has an innovative auction platform that helps smaller companies raise invoice dinance.
August 22, 2014

You can’t buy shares in Platform Black because it is a private company, but there is a chance to make your money work for you. The company has developed an innovative approach to providing smaller companies with much needed finance through the use of an auction platform. Companies decide which invoices they want to raise finance on, and set the maximum price they are prepared to pay. Investors then compete to buy the invoices, and the competitive element helps to drive down the cost of finance that smaller companies have to pay. The upside is that invoices can be turned into working capital, while for investors; the return is around 1 per cent per month. So far, around £70m of new finance has been raised in this way, and last year there were 850 auctions, all of which were successfully concluded.

Platform Black also offers supply chain finance. Using this process, a supplier, having delivered the goods, can gain immediate payment by accepting a discount on the invoice. The supplier gains faster payment, while the customer still doesn’t have to pay up until the agreed payment period - such as 30 days – expires.

Part of the reason that even more money is not being made available though this method of invoice discounting is that many small companies continue to deal with their bank, with varying degrees of success, but with no help in making them aware of alternative means of finance. What’s more, big banks have high overheads, and struggle to make any profit on small loans without charging high rates of interest.

However, help is at hand. Platform Black is a founding member of the Alternative Business Funding (ABF) collaboration which is currently consulting with the government on how to improve financing access for SMEs. Two key measures that the ABF are helping to implement are the banning of non-assignment of invoices within contracts. At the moment, big companies and public sector bodies can insert clauses into supplier contracts banning the right to raise invoice finance on work already delivered, which is rather rich since it is the small companies that are extending credit by waiting to be paid. The second key measure is that banks must provide alternative lenders with data, with the borrower’s consent, to help them make a decision on how to raise finance.

There are further measures that are being proposed. These include an obligation by banks to refer business that they decline onward to alternative lenders. The economics provide a compelling argument for the full implementation of these measures. SMEs currently generate half of UK GDP, employing 60 per cent of the workforce. And yet 90 per cent of all SME finance is still controlled by the big four banks, and over one third of all borrowing applications are thrown out.