Alternative finance news is dominated by P2P lending and crowdfunding with little time spent looking at other areas, such as Invoice Financing. AltFi caught up with Eyal Shinar, founder and CEO of Fundbox, to discuss where the need for the sector came from, growth expectations and regulation.
Most successful businesses are born out a gap in the market. We asked Eyal what led him to set up Fundbox:
“According to a U.S. Bank study, 82% of businesses fail due to poor cash flow management. And while this is a recent study, this is not a new problem. Historically, SMBs have struggled to maintain a positive cash flow. Seasonality of business, long payment terms, and unexpected expenditures have left many businesses often strapped to ensure basic operational costs are met in a timely basis.”
This led to Fundbox: “a cash flow optimization tool that leverages Big Data analytics, engineering and predictive modeling that is transforming this massive pain point for small businesses. Fundbox gives small business owners credit-on-demand, embedded directly into their accounting software. This allows them to instantly get paid on outstanding invoices and render cash flow gaps obsolete without disrupting work flow.”
Of course, cash flow is an issue for some businesses more than others – in some industries invoices can take weeks to pay, and accounts payable can make up significant proportions of the balance sheet. Eyal highlighted several varieties of small business that Fundbox appeals to:
“Construction trades, accounting, home services providers, lawyers, wholesale goods and micro manufacturers, marketing agencies, agriculture and IT”
On the topic of growth, Eyal used businesses’ rapid response as a clear demonstration of the need for market invoicing and pointed to exciting growth prospects in the future:
“Fundbox’s growth has surged over the past 22 months, surpassing 300% in quarter over quarter growth. This success illustrates how important it is to provide small businesses with easy access to working capital”
“The market's response to the service underscores how big a problem cash flow management is for small businesses and how broken the traditional payments system was for this particular sector of the market. We expect to see continued growth.”
AltFi spoke to Jason Poole, head of Preservation and Co. – who has used Fundbox to great effect. He pointed to the issues of cash management that come with rapid growth:
“After winning national awards, our company was growing rapidly. (On track to hit a minimum of 500% growth this year) But with payments not coming for 30-45 days, it was very difficult to meet the demand.”
On Fundbox itself, he added:
“I feel that as I am growing as a company, they have grown with me. As my invoices were getting larger, I was able to get a larger credit line. It has helped me to cut back on factoring, and still get all of my bills paid.” – Clearly Preservation and Co. has benefited greatly from this access to finance.
As part of this growth, further innovation must continue – as companies, such as Fundbox, look to continue to disrupt traditional finance and stay ahead of the traditional industry. Eyal mentioned Fundbox’s launch of a new mobile dashboard, emphasising it as another way of improving SME’s ease of doing business. She said:
“According to a 2014 AT&T Small Business Technology Poll, 94 percent of small businesses use smartphones to conduct business, and mobile technologies are saving U.S. small business owners more than $65 billion a year. The new mobile-ready dashboard will help small business owners more effectively manage cash flow and finances in the palm of their hands.”
With the prevalence of mobile technology amongst small business owners, this is surely a smart move which is particularly appropriate for Fundbox’s target market.
In recent months, invoice financing has seen much quieter regulatory changes than crowdfunding. As it continues to grow and mature, however, it is expected to meet more regulation. Eyal reflected this sentiment but insisted that this was good news for him company:
“Transparency is critical, and something we already have firmly in place.”
Boldly, Eyal makes the claim that Fundbox is in a fitting position to lead the industry in good practice and help shape the industry in a responsible way:
“We believe our industry leadership will continue to play a critical role, and other companies will follow suit in terms of how Fundbox clearly highlights all relevant details prior to a small business owner initiating a transaction. I predict this will become increasingly more important as the industry grows.”
The statistics highlight that SMEs have a real financing problem – particularly in this low risk, bank dominated market as banks may refuse, or are unable, to offer the necessary credit. Invoice financing, by firms such as Fundbox, can provide a real life line to businesses struggling to get off the ground.