Peer to peer finance, both to businesses and consumers, has become more and more popular over the past few years among investors looking for good returns.

Here at MarketInvoice we are committed to providing businesses with the funding they need to grow. Businesses trade their unpaid invoices in return for cash upfront to fund new projects and business growth, and investors get their money back, plus a return.

On rare occasions, the invoice which has been financed is not paid. For such occasions, we have a robust collections process in place when things don’t go to plan to help limit exposure and protect our investors.

The collections process covers various phases: overdue, chasing for payment, delinquency and recovery. Throughout these phases, we explore any repayment options available before recognising any loss. Our recovery protocol sets out the process we follow and investors have control over the options and routes we take. We are committed to providing investors with regular updates throughout the recovery process, however it pans out.

Overdue

Every trade has an expected payment date by which the debtor is expected to make payment and repay the amount advanced. A trade is marked as overdue if it is not settled on the day after its expected payment date. If an update is not received to explain any delay, we will contact our customer (the ‘seller’ of the invoice) to request clarification.

If no payment or explanation for a delay is received, the seller is required to repurchase the outstanding debt.

Chasing for payment

When sellers use us, they retain responsibility for their credit control. This means that they issue invoices, evaluate how much credit to extend to their customers and chase for payment, maintaining full control over their customer relationships.

However, in collections circumstances the debtor is chased for payment directly as our investors still own the debt until it is settled. This gives us an avenue to pursue payment, and can also give clarity on any potential dispute, insolvency, or anything else that means the seller or debtor can’t honour the contractual obligation.

Delinquency

If the invoice is overdue its expected payment date by more than 45 days, in the absence of any valid explanation or investor approval instructing us otherwise, the trade is marked as delinquent.

The trade is also marked as delinquent if the seller or debtor becomes insolvent at any point after the advance is made, or if there is suspicion that a fraud, redirection of funds or other dilution of the invoice has occurred.

Recovery options

Once a trade has been marked as delinquent various options open up within the collections process to collect the funds owed.

These include:

  • Repayment plans:The best recovery rates tend to be when a seller is engaged early to agree an amicable timescale to repay an overdue or delinquent trade.
  • Litigation: This involves obtaining a judgment against a seller by issuing proceedings, most likely where there is a dispute with a debtor. If judgment is obtained and payment does not follow, then it needs to be enforced. Litigation may also be pursued against the debtor, if the seller is insolvent or otherwise unable to repurchase the invoice.
  • Petition to wind up: If agreement with the seller has not been reached to repurchase the invoice(s), a statutory demand and winding up petition can be considered.
  • Administration: If a debenture is held over the seller’s assets, the appointment of an administrator can be considered , who will be responsible for pursuing recoveries in the interests of all creditors, not just our investors.

Although all of these options are available, it is often very difficult to estimate the timing of any recovery, particularly where an insolvency process is involved.

Each recovery situation is different, but investors are given as accurate a position as possible to ensure they have control over their trades and decisions made in relation to them.

Crystallising a loss

If it becomes clear that some or all of the funds owed are unable to be recovered, the trade is marked as a crystallised loss.

The main criteria for recognising a loss are:

  • The seller has gone into an insolvency process and no recovery is likely
  • Alternatively, where 180 days have passed since the seller entered an insolvency process, or
  • All feasible and reasonable recovery options have been exhausted.

Crystallising a loss does not necessarily mean that all and any recovery options have ceased. If there remains any prospect of recovery, particularly if the timescale for realising it is longer term, that recovery continues to be monitored.

Investor communications

We update our investors via the platform once a repurchase demand is sent, and/or when there is material news affecting their trade(s). Investors are given a vote before any recovery action is pursued, particularly when costs will be incurred in pursuing them.

We regularly update investors on the status of delinquent trades where we are pursuing litigation or insolvency proceedings, and we will also provide investors with a more detailed update as and when we take the decision to mark any trade as a crystallised loss.