Invoices marketplace AREX has raised 3 million euros from Lifeline and LocalGlobe’s Robin Klein for further product development and to underpin its 2017 launch into the British market.
Irish startup AREX, founded in 2014 by two Finns and an Estonian, has put together what they call an Account Receivables Exchange – a solution for short-term borrowing against receivables, a solution which is having a number of competitors like Investly.
AREX works by using your accounts receivables as an asset to borrow against – so say you hit that big deal that’s going to pay out in 60 days, you can take that invoice to AREX where the credit ratings of the two companies are used to create an AREX contract that can be bid on by investors. If enough investors make the market you can receive the invoiced money immediately, at a discount.
A team of serial entrepreneurs with wide-ranging experience in fintech, financial services and database architecture at Maventa (electronic invoicing), Wall Street Systems (FX and treasury), J.P. Morgan and Skype, AREX – which stands for ‘Account Receivables Exchange’ – is working on transforming the way cash-squeezed small- and mid-sized firms access short-term finance.
“AREX are yet another example of the ambition and brilliance of execution so evident in the Nordic fintech sector right now. They are a team with proven pedigree and a huge mission in a market that’s poised for enormous change – and we’re very excited to be working with them,” said LocalGlobe’s Robin Klein.
A perfect storm of sector trends has converged to create an increasingly difficult trading environment for SMBs globally. First, since the credit crunch, measures introduced to strengthen the regulation, risk management and supervision of the banking sector have choked off the supply of money banks have available to lend to businesses, reducing by around 50 percent the cash loaned to SMBs annually.
Many of the larger players have extended their own payment terms, meaning that SMBs are increasingly facing situations in which their suppliers are asking to be paid immediately, whereas their customers are taking 90 days to pay them.
Creating new asset class
SMBs are increasingly finding that borrowing against unpaid invoices is one of the most effective ways to enhance their cash flow, said AREX’s founding CEO Kim Forsman. “The factoring industry – already a $2tn market globally – is one which has remained largely manual and little-changed by technology, with SMBs obliged to sell their invoices via intermediaries at hugely disadvantageous terms.”
With less than 3 percent of invoices worldwide sold to factoring companies today, the global factoring market could be growing to be worth up to $70tn, said Timo Ahopelto, Founding Partner at lead investors Lifeline Ventures.
“Kim and the team are building an entirely new asset class, that is both a new model for investors, enabling them to participate in SMB financing in a way that simply wasn’t possible before, and a critically important way for small and medium businesses – potentially across the world – to release their working capital,” Ahopelto said.
