Facebook forays into invoice factoring business; launches a $100 million program to buy unpaid invoices from 30,000 small businesses owned by women and minorities

Globally, 18% of small businesses said they were currently closed, down from 24% in February. In the US, both numbers were slightly lower, at 16% and 22% respectively. However, of those businesses still operating globally, more reported reduced employment this time around, rising from 30% in February to 36% in July. Some of the businesses that survive rely on factoring companies to stay afloat.

The global factoring services market size was estimated at $3,235.88 billion in 2020 and is expected to reach USD 3,400.91 billion in 2021, according to market research firm GrandViewResearch. Invoice factoring is a type of invoice finance where businesses “sell” some or all of their outstanding invoices to a third party as a way of improving their cash flow and revenue stability.

A factoring company usually pays small businesses most of the invoiced amount immediately, then collects payment directly from your customers. For the most part, Most of the businesses are usually small businesses owned by women and minorities by buying up their outstanding invoices. Factoring companies make money by charging a fee, usually a flat percentage of each invoice you factor. Generally, fees range from 1.15% to 3.5% per month. Now, social giant Facebook wants to get into the lucrative invoice factoring business.

Today, Facebook announced a $100-million “Facebook Invoice Fast Track” program to support small businesses owned by women and minorities by buying up their outstanding invoices. By buying up outstanding or unpaid invoices, the program then puts money in the hands of small businesses that would have otherwise had to wait weeks if not months to get paid by their customers. According to the announcement, the social giant estimates the program will support approximately 30,000 small businesses.

“To address the needs small businesses are facing with cash flow, we are introducing two new ways for diverse businesses to access capital more easily: After a successful pilot with Facebook Diverse Suppliers, we are expanding the Facebook Invoice Fast Track program. Beginning October 1, eligible US-based small businesses will have the opportunity to get cash immediately for the goods and services they’ve invoiced their customers, instead of waiting the 60 to 120 day period it normally takes to get paid. We will be funding $100 million in invoices on an ongoing basis,” Facebook said.

“We’re introducing a new small business funding resource on Facebook that connects small business owners with purpose-driven grant & loan opportunities, business resources and small business networking groups.”

According to Facebook, women and minority-led businesses were still more likely to be closed than the global average. 20% of women-led businesses were closed globally, compared to 16% of those led by men. In the US, Hispanic-led businesses were the most likely to report being closed at 24%, a drop of two percentage points since February. Minority-led businesses in the US were also more likely to report lower sales compared to the same period in the previous year, with 44% doing so compared to 29% of other small businesses.

One silver lining is that many small businesses have found success by shifting online. The use of digital tools has increased during the pandemic, and it’s up again in this survey to 88% of all businesses compared to 81% in February. More than half expect their use of digital tools to be permanent. For some, shifting online has been the difference between staying afloat or going under. For others, it’s given them a whole new lease on life.

However, most small businesses are still struggling financially. 60% stated they had some form of difficulty in paying business-related expenses, and roughly a quarter reported struggling to pay down loans or debt (26%), bills (25%), rent (25%), and employee wages (24%).