A Known Loan: How Fundbox Solves Cash Flow Woes for Freelancers

Eyal Shinar wants to make a list of the top problems affecting small business owners and solve them all. To start, he’s helping them get paid on time.

Shinar is CEO of Fundbox, a service that spots users the sum of any invoice, allowing them to pay it back in installments while waiting for the check to come from their clients. For contract workers familiar with the depressing dance of waiting 60 days or longer for clients to pay up, that’s welcome news.

The freelancers cash flow quandary

“For freelancers…it all comes down to cash flow,” Shinar, who came from a family of small business owners, told me. “We’re familiar with that pain point.”

While traditional small business owners need consistent cash to fuel payroll, inventory, and new hires, many freelancers are usually just trying to buy groceries or pay the internet bill so they can actually submit future assignments.

“Some of our freelancer customers have invoices as low as one hundred and fifty dollars and two hundred dollars,” Shinar said. “If you were trying to get a credit card for two hundred dollars, it would be a much more difficult process.”

As would going to bank for a loan. Not only does Fundbox cover small amounts, freelancers can clear invoices instantly, rather than running to a bank or waiting for credit approval online. And time saved, as freelancers know, is money made.

“Our evidence is that in nine months, we’ve seen more and more freelancers sign up,” Shinar added. “We see a very high of percentage of them coming back and using us every week or every two weeks or every month.”

How it works

Fundbox communicates directly with freelancer accounting software, such as QuickBooks or FreshBooks. When an invoice is created, it appears in Fundbox with repayment terms including the costs of weekly installment and the total “clearing fee” the user can pay in full it at any time. If users pay the fee early, all remaining clearing fees are waived.

Like with most credit services, everyone won’t be approved, and even when someone is approved, not every invoice will qualify. Fundbox’s unique algorithm not only takes a freelancer’s finances into account, but also what Shinar called the “web fingerprint,” which could include social followers, Yelp reviews, and other public data.

The same strictness applies for who you’re billing. If Fundbox can trust a user’s client, they’ll advance the funds. If not, users have to choose other invoices to clear.

Shinar referred to the process as Fundbox’s “secret sauce.” Aggregating information from around the web gives the company a nimbleness that allows them to approve thousands of very small loans very quickly and lets those who don’t initially qualify to quickly establish their credibility.

“Once we connect to your invoicing and you stay connected, in a week or month or three months, you can qualify because the system is working automatically,” Shinar explained.

How it doesn’t work

Hiring a company to settle outstanding invoices isn’t a new phenomenon. Invoice factoring is one type of service where third-parties buy invoices from businesses for a percentage of the total gross and then take over the collections process entirely. As explained by Riviera Finance, companies that do invoice factoring become the small business’s de facto accounts receivable department.

Fundbox, however, doesn’t buy invoices and wait for payment from someone else’s clients. Instead of outsourcing the money exchange, Fundbox keeps the transaction private so clients aren’t confused, offended, or asked to take on unnecessary tasks. Many small businesses and freelancers don’t like traditional invoice factoring, according to Shinar. “They come in between you and your customer,” he said. “It’s also a pretty complicated, old school, and inefficient financial solution.”

A work in progress

Is Fundbox a perfect tool? No. As online media expert Kate-Madonna Hindes wrote on her GirlmeetsGeek blog, Fundbox’s terms of service were initially unclear regarding some important user privacy and security issues. For example, the company has the right to access customer data and can look at your criminal record.

But in the spirit of transparency and customer service, Shinar replied directly to her blog, clarifying her questions and assuring that his team would review her feedback while continuing to develop the service.

That wasn’t the first time Shinar and Fundbox took input from the customer into consideration, either. The option to pay off a cleared invoice early and wipe out remaining fees was originally suggested by users, not from within.

“The vast majority of our customers are repeat customers, but they are not shy about their opinions,” Shinar said. “We are very sensitive to that, and anything we can do to help with the freelancer economy is something we can take very seriously.”

Funding for the future

Shinar is not shy about the fact that his company, while also a beneficial service, is built on a savvy business decision. With 42 million freelancers now reportedly working in the U.S., and those numbers set to outpace employed workers by 2020, creating a crucial cash flow tool for contract workers could lead to big business. In fact, Shinar expects Fundbox to be the first of many tools his team creates to make life easier on freelancers and small business owners.

“Obviously, you want your business to do well, but I don’t think any of our partners or employees would go to work without feeling they are doing something to help the little guy,” he said. “That is bringing our entire team to work every day.”

And for freelancers who have struggled to stay afloat while waiting for payment, Fundbox could turn out to be the tool that allows them to keep coming to work every day as well.