CBA gears up for invoice financing product with fintech Waddle

Commonwealth Bank is expanding its SME offering with a digitised invoice financing product in partnership with the Xero-owned fintech Waddle.

CBA will offer a fully digitised invoice financing product. Picture: NCA NewsWire/Gaye Gerard

Commonwealth Bank is strengthening its pitch to the keenly sought SME market, becoming the first of the major banks to offer invoice financing for working capital.

In partnership with lending platform Waddle, CBA will offer a fully digitised product using a live feed of customer data through accounting software packages such as Xero.

CBA group executive of business banking Mike Vacy-Lyle said cash flow was one of the key issues facing small businesses.

“While small businesses traditionally use fixed assets such as property to secure an overdraft or loan, we have developed Stream Working Capital, which will allow customers to access funds by using their outstanding invoices as loan security,” Mr Vacy-Lyle said.

“The loan size reduces automatically as invoices are paid, so customers never pay for credit limits they don’t need.”

Invoice financing has had a bad reputation recently with the collapse of the global Greensill group. The CBA model, however, is fundamentally different, with transparency ensured through settlement of payments into the customer’s CBA account, and deals backed by the CBA balance sheet.

Business banking boss Clare Morgan said the Greensill model was more complex and less transparent.

After 12 years at CBA, Ms Morgan said the time was right to launch a technology-enabled product, with previous incarnations seen as resource-intensive, paper-based and vulnerable to fraud.

CBA group executive of business banking Mike Vacy-Lyle.

Also, the receivables funding market was much less developed than in Europe or the US, opening up the potential to deliver billions of dollars in additional funding to local SMEs.

“There’s a large funding gap for small business – about one in four small business customers say they have difficulty getting finance because there’s a lack of flexibility when it comes to collateral,” she said.

Turnaround times also need to be “greatly reduced”.

Manual processing times could be slashed by up to 80 per cent, collapsing the industry standard for credit decisions from weeks to about three days.

Ms Morgan said the aim was to allow businesses get faster access to cash flow so they could cover their short-term operational needs.

As a result, customers would be better placed to operate their fixed assets for longer-term strategic goals and investments.

“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,” she said.

“They also face increasing pressure from suppliers wanting to be paid earlier and buyers wanting to extend payment terms.

“Using invoices to access credit addresses this issue and can provide some peace of mind for businesses which can now access cash locked up in their invoices – it’s an essential part of helping small businesses recover and grow as they continue to navigate a new operating environment during the pandemic.”

Businesses will be able to convert 40-80 per cent of the value of their invoices to loans, depending on the level of risk associated with the customer and the invoice.

Ms Morgan said the interest rate charged on the product would be in the high single-digits – somewhere between the cost of a commercial property loan and an unsecured business overdraft.

Waddle, which was bought by Xero in 2020, will receive a licensing fee from CBA for use of its platform.

Co-founder Simon Creighton said the platform significantly shortened time-consuming processes like credit assessment, underwriting and monitoring.

Credit limits would be tailored to the business and rise and fall in real time based on the value of the outstanding invoices.

The greater the number of invoices, the higher would be the available limit.

Businesses don’t have to pay an establishment fee, and interest is only paid on the amount drawn down.