#153 - Morgan O'Hana – From factoring to BNPL BtoB, Defacto breaks the ceiling 🦾

Co-founder and COO of Defacto

Apr 16, 2023

When we hear that factoring represents 18% of GDP in France, we feel that there is a great development opportunity for this young start-up created by former colleagues of Spendesk.

Morgan takes a look at the value chain for us and explains in detail the needs of SMEs for short-term financing.

Deploying an easy-to-use API, Defacto makes it possible to obtain funding seamlessly in the blink of an eye.

We do a quick update on the “Buy Now Pay Later” (BNPL) in 2023, on the notion of B2B checkout, vs BNPL B2B.

There is also talk of collaboration with Viola Credit, a fund recently created by the Israeli Venture Capital Fund and the upcoming creation of a common securitization fund.

We also focused on partnerships with FinTech scale-ups on the international deployment strategy and on the evolution of the typology of customers.

Finally, we understand what Defacto's strategy is in the long term and you will still see that risk plays a central role!

Factoring

Why are we talking about factoring?

BNPL and factoring are two methods of financing, initially intended for different audiences, BNPL being aimed at consumers who want to spread their payments over several months, like us. We dive deeper with Eric Petitfils (Klarna) or Louis Chatriot (Alma).

Factoring is intended for companies that need to finance their activity by assigning their invoices to a third party. It is an old financing technique that consists of assigning invoices to a third party (the factor), in exchange for an advance payment from the latter. Factoring companies use the principle of a transfer of solvent receivables.

This method of financing is particularly useful for companies that want to improve their cash flow by converting their receivables into cash. Indeed, factoring makes it possible to reduce the payment time of customer invoices and to guard against the risk of non-payment.

The main historical players in factoring have been banks (such as BNP Factor or Eurofactor, a subsidiary of Crédit Agricole) and specialized factoring companies (Creancio or Finexkap). Banks began to offer this service in the 1960s, but they soon faced competition from factoring companies, which were able to offer more competitive rates and adapted to the needs of companies.

The financial mechanisms involved in factoring are relatively simple.

The factor advances part of the invoice amount (usually between 70% and 90%) to the company, which then assigns the invoice in question. When the customer pays the invoice, the factor pays the company the remaining balance, deducted from the commission.

The risks for companies are mainly related to the solvency of their customers. Indeed, if a customer does not pay their bill, it is the factor who bears the risk. This is why the factor usually performs an analysis of the creditworthiness of customers before validating a factoring transaction.

The method of remuneration of factories varies according to the contracts. In France, the factor's commission is generally between 1% and 3% of the amount of assigned receivables. This commission depends in particular on the level of risk associated with the invoice.

Factoring is a common practice in many European countries, including Belgium, Germany and the Netherlands. However, factoring penetration rates vary considerably from country to country. In France, factoring is particularly developed, as Morgan confirms. But it is broken due to cumbersome, tedious, slow and very expensive processes…

BNPL B2B

As Morgan explains, there is a real difference between B2B BNPL, which is what Defacto offers, and “checkout” BNPL. These are two different types of deferred payment services that cater to different audiences and operate differently.

The operation is as follows:

The company purchases goods or services from its supplier.
Defacto offers the company the possibility to pay later, by granting a payment period or by offering a staggered payment plan, based on a finer risk analysis than a factor, thanks to an ultra-well-oiled data management: from collection, to processing and calculation of “scoring”.
Le supplier finances its invoice via Defacto.
Defacto can then collect the debt from the company at a later date.

Viola Ventures

Already discussed in my 2020 article on Israeli Tech (here), then later during an episode with Isabelle Azoulai (here), I give you an update on Viola Ventures.

Viola Ventures is an Israeli VC that invests in seed and growth start-ups. Since its inception in 2000, the VC has invested in more than 200 companies, including Outbrain and Fiverr.

Viola Ventures has expanded its business, developing Viola Credit, which focuses on financing private debt to start-ups. Viola Credit's private debt funds offer loans to companies that need financing to continue their growth or to refinance their existing debt.

This initiative allows Viola Ventures to expand its investment portfolio and provide alternative financing to companies outside of traditional financing channels, such as bank loans or bond issuances.

Defacto

Founded in 2021 with its own funds, Defacto quickly raised pre-seed and Series A from Business Angels such as Thibaud Elzière, Didier Valet, Victoria van Lennep and Arthur Waller, VCs (Motier Ventures, Financière Saint James and Viola).

In brief:

Created by Morgan O'Hana, Jordane Giuly (both of the Spendesk Mafia) and Marc-Henri Gires,
EUR 21 million raised in Equity/Debt,
EUR 150 million financed,
+ 15 000 clients in France, Germany, Spain, Belgium and the Netherlands,
Covering + 200 different sectors.