This Startup Bridges Cash Flow Gaps, One Invoice at a Time

This Startup Bridges Cash Flow Gaps, One Invoice at a Time

In the clear: Eyal Shinar.

Image credit: Brad Wenner
This story appears in the December 2014 issue of Entrepreneur. Subscribe »

Chasing down late payments from clients was par for the course for Martin Stevens. Diversified Technical Support, his IT company in Portage, Ind., regularly carried up to $5,000 in outstanding balances per year. That is, until Stevens signed up for Fundbox—a financial-technology company that doles out low-cost advances on invoices of $100 to $20,000.

Gone are his days of sending Net 7 invoices and praying for payment. Since late 2013, Stevens has used Fundbox to clear $22,000 in accounts. He finds that by extending payment terms to customers to 90 days and using Fundbox to pick up the slack, he gets paid faster and more often.

Besides liberating cash flow at a lower rate than any offered by his credit cards, Fundbox has enabled Stevens to increase his business due to the easier payment terms. “Our average transaction has grown from the $150-to-$200 range to the $250-to-$350 range,” he says.

Since launching in August 2013, Fundbox has attracted thousands of small businesses to its service, most with revenue of less than $5 million, according to founder and CEO Eyal Shinar, who is based in San Francisco. “We are processing tens of thousands of invoices on a weekly basis,” he says. 

The financial platform—which nabbed $17.5 million in funding earlier this year, with backers that include former Citigroup, PayPal and JPMorgan Chase execs—boasts a 98 percent customer-retention rate, Shinar says. Here’s what you need to know about the Fundbox service.

How to apply

Applying for Fundbox is free, simple and speedy, provided you’re already using one of the bookkeeping apps with which it syncs: FreshBooks, Harvest, Intuit QuickBooks or Xero. Once you create a free account via your accounting software, the platform delivers an automatic verdict on your creditworthiness, typically within 24 hours, according to Shinar. 

Fundbox uses a proprietary algorithm to gauge likelihood of repayment, starting with your financial data—including accounts receivables, client financial statements, cash flow and payment history—and moving on to public data such as credit ratings, government information and social media accounts. 

Roughly 40 percent of businesses that apply get approved, Shinar says, with credit lines ranging from about $5,000 to $20,000.

Getting paid

Clearing an account involves little more than logging into Fundbox and selecting the invoice you want the platform to pay. The site calculates the risk of each invoice and assigns a fee for each based on the risk and probability of repayment. Once you select an invoice to clear, the money is deposited directly into your bank account.

Unlike factoring—in which a business sells receivables at a discount to a third-party financier—Fundbox does not hit up your customers to square the account. “Your relationship with your customer stays between you and them,” Shinar says.

What it costs

Fundbox takes a .7 to 3 percent advance fee per invoice per month, based on your specific invoice risk and history with the service. Shinar claims that the average customer pays about 2 percent. Borrowers have on average 85 days to repay each advance. Repayment is automated, with
Fundbox withdrawing 12 identical weekly payments from a borrower’s bank account that will cover the cost. There’s no charge for early repayment.

According to the calculator on Fundbox’s website, clearing a $1,500 invoice would cost between $71 and $96 in fees (plus $5 to $10 in bank charges, if applicable, from your financial institution). For Stevens, the fees amount to roughly 6 percent of each invoice when he takes the full 85 days to repay—much cheaper than any business credit loan. Each advance is priced individually, according to Fundbox’s assessed risk for it. 

Repeat customers can see their advance fees improve. “The more you use the platform,” Shinar explains, “the lower your overall risk would be over time.” 

Edition: November 2016

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