An interview with Co-founder and CEO of DEBIFO

One of the most recent developments in the Baltic alternative finance market is invoice financing. DEBIFO is the first company in Lithuania to start offering invoice financing to Lithuania’s small and medium-sized businesses that lack working capital but have unpaid invoices issued to large and creditworthy companies. Fighting their way to the top of the market, in less than one year, DEBIFO has financed more than EUR 1.8 million of invoices.

Justas Saltinis

CEO and Co-founder Justas Šaltinis believes there is at least a EUR 100 million gap between available funds and necessary financing for these types of companies in Lithuania.

Q: How did you decide to enter the invoice financing industry and establish DEBIFO?

As an active investor for more than 10 years, I began investing in Baltic peer-to-peer lending platforms and became interested in various alternative financing solutions being launched across Europe. At the same time, my business partners were building an IT company and were facing cash flow issues. Their client, a large multinational corporation with a sound balance sheet only accepted a 90-day payment term, and they could not get a bank loan against the client’s invoice to get more working capital. Because of this, they could not take on more clients or accelerate business growth. We realized that many small and growing businesses might be in a similar situation and that we could offer them a solution. That’s why we started DEBIFO.

In fact, official statistics and several surveys carried out by financial institutions indicate that the funding problem we faced ourselves exists on a large scale. We estimate that there is a gap of at least EUR 100 million between accessible funds and financing needed by businesses in Lithuania, and we are determined to reduce this gap.

Q: What is your background and experience in the industry? 

I studied economics and business at the Stockholm School of Economics in Riga, and I also am a CFA charterholder. I come from the investment banking industry, where I worked at one of the leading investment banking boutiques in Lithuania, specializing in SMEs. I have spent a lot of time analyzing companies from the business and potential investment side, and have participated in numerous debt rating and raising projects, M&A transactions and capital market projects.

Q: Please tell us more about how the invoice-financing product works.

DEBIFO’s invoice-financing solution is a simple and flexible tool for an SME to finance outstanding invoices issued to large companies for an advance of up to 90%. The reserve is used to cover potential shortfalls (i.e. quality, quantity, contractual reserves, and other trade disputes) and is paid when the Purchaser (i.e. the Borrower’s client) makes the final payment to the account controlled by DEBIFO. In most cases, invoice financing is provided with recourse. This means that if the Purchaser does not pay, the Borrower will be responsible for covering the loan.

Invoice financing is often compared to bank factoring, but DEBIFO’s invoice-financing solution has several key advantages: speed, fair and transparent pricing, and no long-term contracts.

Q: Who is your typical borrower and how many companies have received your financing?

DEBIFO clients operate in the manufacturing, healthcare, wholesale, retail and construction sectors. Our typical client is a company with a 5-year trading history, revenue of up to EUR 1 million, and one that is looking for additional working capital to fuel business growth. Currently, more than 20 companies use DEBIFO’s invoice financing service on a monthly basis. To date we have financed over EUR 1.8 million in invoices.

Q: What is the underwriting procedure? What factors do you take into consideration?

Our underwriting procedures are evolving, and a short invoice repayment cycle allows us to quickly adapt and improve our underwriting model. We evaluate both the Borrower and the Purchaser to determine the invoice transaction’s credit rating. Items we review include the Borrower’s and the Purchaser’s financial reports, terms of trade contract, prior receivables payment history, the Borrower’s corporate structure, client portfolio, business operations, and the reputation of the Borrower and the Purchaser. We require more information than alternative lenders because we believe that due diligence will keep our delinquency and loss rates lower.

The invoice-financing product is structured to have a high security level. Thus, we have a claim against the Purchaser, recourse to the company (i.e. if the Purchaser does not pay, the Borrower has to cover the unpaid invoice) and in all cases personal guarantees are signed by the Borrower’s shareholders or directors that provided information is accurate and factual. Our structure is also useful in the case of the Borrower’s bankruptcy, as we are able to bypass the bankruptcy administrator and have a direct claim against the Purchaser.

Q: What has been your experience with repayment discipline?

Invoice payment discipline depends on the industry and Purchaser’s size. Large corporations have automated accounting and payment systems that make payments on the exact invoice due date, while smaller businesses are likely to extend payment terms by at least 1-15 days. Our internal data suggests that prepayments by the Purchaser or repayments by the Borrower account for 27%, invoices paid on the due date comprise 21%, payments within 30 days past due date constitute 46%, and the remaining 6% of payments are made later than 30 days after the term.

Q: Why would Mintos investors want to invest in DEBIFO invoices?

First, invoices financed by DEBIFO are short-term investment products with an average payment term of 45 days. Second, invoices are a relatively safer investment product because they are backed by the second most liquid asset in the company – accounts receivable. Third, investors can expect a double-digit net annual return from invoices financed by DEBIFO. Fourth, investments in invoices provide vital funding for small businesses in Lithuania. Finally, invoice financing is a relatively new investment product that maintains a low correlation with traditional asset classes and allows further diversification for investors.

Q: Do you plan to increase invoice volume on the Mintos platform?

Of course. During the first 8 months of operations, the DEBIFO team has financed invoices almost solely using shareholders’ funds. Once assured the model was viable, we decided to attract outside investors. DEBIFO’s client base is steadily growing and volume is picking up, so we are increasing invoice offerings on the Mintos platform, as well.

DEBIFO’s financial data and loan book statistics are available here.


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