For small businesses and freelancers, successfully performing work for customers and clients is only half the battle. Oftentimes, businesses wait up to 90 days to receive payment for their outstanding invoices. This delayed cash flow can create a variety of problems, especially when it comes to covering overhead expenses like rent and payroll.
That’s why Eyal Shinar developed the Fundbox software service, to help small businesses fix their cash flow problems as it relates to outstanding invoices. Fundbox is the leading cash flow optimization platform for small businesses, and who better to start a fintech company focused on this problem than someone who learned it at his mother’s knee? Shinar’s mother was a small business owner, so growing up he saw the pain and frustration that delayed payment of invoices can cause. According to a recent report, 82 percent of small businesses fail due to poor cash management. Where some see problems, others see solutions, and that’s where Fundbox comes in.
The process is straightforward. Business owners simply connect their existing accounting software to Fundbox and submit their outstanding invoices for immediate reimbursement. The business owner incurs a small fee for this service and they are given up to 24 weeks to pay Fundbox back.
For banks looking to offer new or better services to small business clients and freelancers, though, is Fundbox a good partner? Let’s look a little closer.
Small business accounts are a much coveted group for banks, so providing new tools to improve service and/or relationships with this group should be of interest area to most any financial institution. The fact that Fundbox already has some traction in the small business space should be a good indicator for banks that the service they provide—instant cash flow—is a needed service for this group.
Once a small business owner submits an invoice to the Fundbox platform, they are typically paid within one to two days. Fundbox connects easily with most existing accounting platforms that small businesses are already using, such as QuickBooks, Freshbooks, Xero, Wave and Sage One, so there is very little to do in terms of importing data. Fundbox connects with a few simple clicks and pulls any outstanding invoices that business owners might want to turn into cash. Also, when the user signs up for their account, Fundbox uses big data and algorithms to quickly determine the consumer’s financial health rather than putting them through a lengthy application and approval processes.
The pricing model is simple and transparent. For an invoice of $1,000, the fee is $48 per week over 24 weeks, or $89 per week over 12 weeks. Fees are reduced if the business pays back what it owes prior to the deadline, which is a good incentive to keep Fundbox’s own cash flow looking good, although they have no shortage of funding—another point that might give banks some comfort in partnering with the company.
While the Fundbox fee structure is quite straightforward and transparent, it’s also relatively expensive and can really add up over time, especially for businesses that regularly choose the 24-month financing option. After you do the math, the annual percentage rate for Fundbox repayments can range anywhere from 13 percent to 68 percent. Fundbox also places a $100,000 limit on invoices that it will fund, so it isn’t an option for companies seeking to turn accounts receivable for amounts larger than that into cash.
While Fundbox is compatible with most of the common accounting software mentioned earlier, small businesses that use less common accounting packages or Excel spreadsheets can’t utilize its service. Other drawbacks are that Fundbox doesn’t provide cash for past-due invoices, and the approval process for credit limit increases can take some time. So while the service is helpful in many use cases, it certainly doesn’t match every situation. Finally, Fundbox is rolling out additional credit products as well, which could increase its presence as a possible competitor in the banking space.
OUR VERDICT: FOE
Fundbox offers an important service to small businesses and entrepreneurs, and does so more conveniently than most banks do today. At a time when so much emphasis is being placed on the customer experience, banks should be taking notice of this heavily-funded bank alternative. If an entrepreneur has outstanding invoices and needs cash to keep the lights on, their only option with traditional banks is to apply for a small business loan, or to go to their credit card company, which charges even higher rates than Fundbox. Furthermore, between the application process, credit checks and agreeing upon collateral, it can be weeks or months before businesses see a penny of the cash they need. For this reason, I applaud what Fundbox is doing, and I think it is certainly a —friend’ to many entrepreneurs in their times of need.
As Fundbox encourages more and more small business owners to come to them for cash, though, this obviously chips away from the bank’s importance and its relationship with their small business clients—a relationship they certainly don’t want to lose. And to date, Fundbox cannot boast of any existing bank partnerships or list banks as an area of interest. Of course, if this was to change, we might reconsider our foe designation.
In the meantime, banks would be wise to understand why entrepreneurs are using services like Fundbox, and how they might better address this particular need, whether it’s partnering with fintech companies, investing in new solutions or building them internally. In short, business owners have enough things to worry about, and getting paid on time doesn’t have to be one of them. Who can blame small business owners for looking outside their banking relationship for help?