Use case - Invoice Markets

The invoice market is a place where invoices trade as a financial instrument: factoring companies finance invoices, fintech companies, and banks. For now, we will call those: Originators. At Invoice Market, Originators can sell invoices to Institutional investors. The Institutional Investors profit from the invoices, and the Originators free capital by distributing their balance sheet risk.

This process goes as follows:

1. A seller (Company A) sells a product or service to a debtor (Company B). The seller creates an invoice. 
2. After verification, the factoring company acquires the invoice in return for financing (usually around 80 to 95% of the total invoice). 
3. The financier holds the risk of the invoice on their balance sheet and is required to hold capital for that risk. As these costs are high, financiers tend to look to distribute the risk to investors.  
4. Investors buy the invoice and take over the risk of the financier. 
5. When the payment term is due and the invoice paid by the debtor (Company B), the financier receives the total value of the invoice. 

The platform then distributes the remainder of the invoice to the investors.

This use case aims to make invoice markets more efficient by creating a non-fungible token (NFT) that will represent the invoice, the underlying receivable cash flow, and have all the functions of an invoice programmed in it built on a DLT specific ledger with an agnostic smart contract

In the Invoice Market use case, the invoice plays a significant role. And there are several issues with invoices and the way they function in an invoice market:

• There is no standard invoice format
• Verification of invoices is cumbersome, leading to unverified invoices being seen as secure titles
• Double spending issues
• Manual payments are prone to error

A tokenized Invoice Market aims to make invoices widely available to investors as a new asset class and overcome the aforementioned issues. Tokenizing invoices create this new asset class on a distributed ledger platform, creating a highly scalable and transparent platform. The platforms (such as banks, factoring companies, and fintech companies) can sell invoices on the invoice market as a new asset class.

After the platforms have acquired invoices that they want to distribute, the invoices are tokenized, put on a distributed ledger, and added to the platform's wallet. An investor can buy this token either as a single asset or a portfolio of tokens fully automated with software acting on predetermined criteria or by automated negotiations (via Smart Contracts, for instance).

Read our blog post for more detailed information on this use case.