Invoice Financing Via Blockchain Targets SMB Cash Flow Problems

Small and medium-sized businesses (SMBs) are the lifeblood of many economies — Europe’s among them — and working capital is the lifeblood of SMBs.

Yet many firms struggle to gain access to the capital that helps them launch or sustain operations. One way to secure funding is to use invoice financing. But even that conduit has its speed bumps, as firms must find investors willing to take the other side of the transaction.

To that end, Netherlands startup Finturi earlier this month said it had secured $2.2 million USD equivalent to help fund its efforts to help companies secure loans against invoices (through linkups with investors) using blockchain and artificial intelligence.

In an interview with PYMNTS, CEO Johannes Brouwer said that for smaller firms seeking access to financing as they look to grow operations, the process has typically been time-consuming and expensive. He said statistics have shown that as many as 18 percent of SMBs in the European Union last year did not get the full funding from banks they had sought. Many companies, he told PYMNTS, rely on private lending.

Invoice financing, he said, still is a “paper-heavy process” that is marked by high interest rates — and these inefficiencies can be addressed by blockchain, which eliminates the need for third parties.

“Blockchain applications like smart contracts can help transactions to be completed faster and more efficiently. They also ensure that all contract data is stored on blockchain, thus reducing risk of fraud,” he said.

It is in the context of risk assessment that artificial intelligence (AI) can play a role in invoice financing, said the executive.

As he noted, “there is a lot of data available from different sources like chamber of commerce, social media, CBS Statline, accounting systems, etc. Risk can be predicted accurately, if all this data is incorporated in an algorithm. The higher the accuracy of the risk assessment,  the higher is the trust in the system and lower are the interest rates.”

The Mechanics of the Model

In reference to the Finturi model as it now stands, financiers register with the firm, and as the CEO said, “provide us with their sectors of interest, risk appetite and preferred value of invoices they wish to finance.” Then Finturi matches firms with investors based on those parameters, businesses receive a recourse loan and the contracts are stored on blockchain.

The company’s initial plans (beyond the platform in place that connects businesses with financiers) are to provide P2P invoice financing services, according to Brouwer, that would connect businesses and clients.

“Our end goal is to make the entire process of supply chain financing much more efficient and faster with the use of technology,” he said, noting the company has already received interest from companies in the wholesale, manufacturing and IT services sectors.

Expanding a bit on the potential for supply chain improvements, he said traceability, process optimization, and managing demand are some major problems in supply chain financing. However, he estimated that an AI-driven, blockchain process has the potential to make transactions up to three times faster and lead up to 50 percent in cost savings.

Looking ahead, “I believe that self-employed professionals or freelancers will be our early adopters,” he told PYMNTS. “This is mainly because our research shows that these professionals often face problems with delayed payment of invoices, and hence they need a cost-effective way of getting money against those invoices. They are also tech-savvy and open to adopting new technology solutions which makes them perfect fit.”

By 2020, he told PYMNTS, the platform has plans to be opened to private investors.

“Initially we plan to operate in the Netherlands. We are aware of the licenses we need for running such a lending platform in Netherlands and we are already working on obtaining these licenses and certifications for customer due diligence and KYC,” Brouwer said. “At a later stage we will open up to international markets.”