CBA to offer invoice financing to SMEs again in a market ripe for a comeback

Economic uncertainty bought on by the pandemic has prompted the Commonwealth Bank (CBA) to step back into the invoice financing market. 

Seemingly unperturbed by the recent slide into bankruptcy by market player Greenshill Capital, CBA has this week announced it has partnered with fintech Waddle to offer invoice financing to SMEs, as it continues to make strides in the business banking sector in recent months under the leadership of Mike Vacy-Lyle.

CBA walked away from the invoice financing market more than a decade ago, but the pandemic has provided the ideal environment to re-introduce the offering.

The bank will now loan businesses between 40% and 80% of the face value of invoices. It has set a minimum amount of $50,000 for outstanding invoices and is targeting businesses with annual turnovers of up to $30 million, but admits it is still fine-tuning the product. 

Last year, cloud accounting platform MYOB invested in fintech Butn and in April, the businesses announced a strategic partnership to rollout invoice financing for MYOB’s small business customers. 

Competing accounting platform Xero also entered the market last year, acquiring CBA’s new partner Waddle in an $80 million deal. Loans provided by Waddle take 72 hours to be approved, down from a typical industry standard of weeks, with no establishment fee.

Invoicing financing is a type of business loan with reduced risk, as the loan is secured against outstanding invoices. It can help a business manage cash flow and free up working capital, given payment terms on invoices often mean they won’t be settled for a month or more. It is distinct from factoring, however, which involves businesses selling their outstanding invoices to a third party at a discount. 

CBA group executive of business banking Mike Vacy-Lyle says under the bank’s new ‘Stream Working Capital’ product, the loan size reduces automatically as invoices are paid so customers never pay for the credit limits they don’t need.

“Cash flow is one of the key issues facing small businesses, so we have been looking at how we can support customer’s working capital requirements helping them maximise cash flow and drive business growth,” he said in a statement.  

Clare Morgan, executive general manager of business lending at CBA, said the goal is to simplify the working capital process, especially for small businesses. 

“We’ve heard from our customers that they want to be able to hold more inventory and build relationships with more suppliers to mitigate supply disruption. They also face increasing pressure from suppliers wanting to be paid earlier, and buyers wanting to extend payment terms,” she said. 

Westpac confirmed it has offered invoice financing for more than a decade, while NAB also offers invoice finance and extends credit for up to 80% of invoices, paid within a day once approved. 

A spokesman for ANZ hinted it could be next to step into the market. The bank is the only player among the big four that doesn’t currently offer in-house invoice financing. Instead, it ‘refers customers to a third party when there is a specific need’. 

But the spokesman added: “We are constantly examining how partnerships with fintechs can enhance our overall proposition in business lending.”

Other lenders offering invoice financing include Bank of Melbourne, St George, Bendigo Bank, Earlypay and Scottish Pacific.