A starter guide to Investly and invoice financing

How does Investly work

The platform is still relatively new to me, as I’ve only been investing in it for the past year. However, its distinct features make it a perfect candidate for diversifying my p2p lending portfolio.

Their main customers are small and medium companies from Estonia and the UK whose customers are large companies that require long payment terms (30 to 180 days).

Investors get the possibility to invest in short-term and high returns invoices. Since invoices are short-term investments, they get their funds back in 1-2 months, and with a decent profit.

The invoices get funded through a bidding process that lasts between 1 and 3 days.

How does the bidding process work

Investly sets the initial base interest rate for the invoice based on the company’s creditworthiness. The investors can bid on the invoice, with the amount they want to invest and their desired interest rate. The interest rates can be the same or lower than the one set by Investly.

At the end of the bidding period, the invoice is fulfilled starting with the lower interest rate bids. The final interest rate for the invoice is based on the last bid needed to fulfill the invoice.

For this example:

• An invoice worth 10.000 EUR
• With 200 investors in total bidding each one 100 EUR
• 60 of them with a 12% interest rate
• Another 60 investors with a 13% rate
• The rest of them with a 14% interest rate bid

The results of the bid would be:

• The final interest rate would be 13%
• All 60 investors that have bid with a 12% interest rate would participate, receiving 13% annual interest on their investment
• Only the first 40 investors that have bid with 13% interest would participate
• None of the investors that have bid with 14% would be participating
• The company receives around 9850 EUR, and the rest of the funds are used to cover the Investly fee and investors’ interest payment

During the bidding period, an investor can bid more than once on the same invoice with different interest rates. The invoice is fulfilled only with the lower interest rate bids though at the end of the bid. The funds are reserved for the entire bidding period, so the investors cannot bid the same funds on multiple invoices.

How does Investly protect your investments

Investly has refined its due diligence process a lot in the past years. In Estonia, they work with CreditInfo to get both buyer and seller companies' credit ratings. They also ask for securities from the seller, in case the buyer company has problems paying the invoice at the due date.

The main requirements for seller companies are to be up and running for at least 6 months, have good credit scoring, and no ongoing court issues. The invoice buyer companies need to be at least 3 years old, have a good credit score, and annual revenue of more than 500.000 EUR. The invoices accepted have payment terms from 15 days to 6 months.

To make sure buyers pay the invoices in time, Investly sends them reminders starting 3 days before the invoice payment date. If the buyer doesn’t pay the invoice 30 days after the due date, Investly goes to the next step. Based on the communication with the buyer and the seller, they decide whether to extend the payment date by another month, file a court case, ask the seller to rebuy the invoice (in full, with fees and interest payments), or sell the claim to a debt collection agency.

A few more details about Investly

Since it launched in 2015, it managed to fund invoices worth more than 40 million EUR. There are currently over 3300 investors on the platform, earning between 11-13% per year.

They have 2 offices, one in Tallinn and another one in London. Their Estonian and UK operations are managed through 2 different companies, Investly Technologies OU (in Estonia) and Investly Ltd (in the UK).

Investly relied on private investors to finance their platform and expand their operations. In 2014, they received a 15.000 EUR investment from Startup Wise Guys, an Estonian startup accelerator.

In 2016, they raised 600.000 EUR from Speedinvest, the largest venture capital fund from Austria.

Come 2017, it had another fundraising and secured another 700.000 from multiple investors. Among them, Founders Capital, a London-based investment firm that also invested in EstateGuru and Bondora.

In 2018, when it had a crowdfunding campaign on Seedrs, Investly was worth over 6 million GBP. It managed to secure another 670k GBP funding from Seedrs investors.

Becoming an Investly investor

You need to be a resident of the EEA (European Economic Area) to become an investor. If you live in a different country, Investly also accepts investors that have an Estonian e-residency.

You can only fund your account through bank transfer, and it takes around 1 day for the funds to arrive in your account. I’ve done this using my Revolut account.

After you set up your account, you can either start investing manually in the available invoices or configure the auto-invest tool to do it for you.

If you want to invest in both invoices from the UK and Estonia, you’ll need to add your bank account twice. Even more, your Estonian and UK investment accounts are separated, and you can’t transfer funds from one to the other.

Platform experience

In the above example, Company A has an invoice worth 110.000 EUR issued by Company B. The starting interest rate is 13% and with a due date of 13 days. There still remains around 60.000 EUR to be funded, so I can also place a bid.

Company A, selling the invoice, has a credit rating of BBB (satisfactory) and a probability of default of 2%. Because of the low credit rating, they also needed to add a director’s guarantee as additional security. The extra guarantee makes sure the invoice seller is directly interested that Investly receives in time the payment for the invoice from Company B.

Company B, which will need to pay the invoice in 13 days, has a credit rating of A (good), and a 1% probability of default.

The auto-invest tool

You can set up an auto-bidder to invest in the available invoices without getting your hands dirty. The rules the auto-bidder works with are the following:

• Let’ say you set a maximum bid amount of 20%, with a minimum interest rate of 11% for buyers rated AAA
• If the bid interest rate starts at 12%, you’ll add a bid with an 11% interest rate
• When the bid interest rate starts with 10%, the auto-bidder will not bid on the invoice
• If your balance is higher than 20 EUR, it will only invest 20 EUR on the invoice
• When your balance is lower than 20 EUR, it will invest all the remaining amount on the invoice

Why you should consider Investly

There are many p2p lending platforms available for European investors, so what would be the advantages Investly could bring to an investor?

The thing is, Investly offers a different risk profile than other p2p lending platforms and helps truly diversify your portfolio.

Typical p2p business lending platforms charge borrowers a 5% fee for a loan (in addition to the interest rate offered to investors). The loan amount is high, and these p2p lending platforms receive enough funds to finance their operations for a long time. But the same borrowers are unlikely to come back soon for a new loan. The typical p2p lending company needs to look for new customers, and that costs money. The cost of the acquisition of a new customer eats up a big chunk of their revenue.

On the other hand, Investly finances even small invoice amounts and for a very short-term period. While the initial cost of acquisition might be high, and the 1-2% fee they receive small, these businesses become repeat customers. They always have invoices issued to large companies that require 60 days to pay them back. The cost of acquisition for long-term customers is zero. In a way, Investly acts as a subscription-based service for companies, sort of a Netflix for invoice financing.

During economic recessions, while companies reduce their activity and ask for fewer business loans, they’ll still need to finance their invoices. Larger companies usually ask for longer payment terms, so the need for invoice financing is even higher.

Conclusions on Investly

I’ve only become interested in Investly after I bought some of their shares issued on Seedrs during their 2018 crowdfunding campaign. Since I had equity in the company, I needed to check out how their product works.

The thing I like most about Investly is its full transparency. Most p2p lending platforms make public only their efforts to attract new investors. Investly equally needs to attract companies (borrowers) and to do so they’re fully transparent about their pricing model and fees, conditions, and recovery processes.

They do have a referral program, but it offers incentives not for attracting new investors, but for attracting companies that need to finance their invoices. It’s the only p2p lending platform I’ve seen do this.