Invoice Financing Comes To SMBs And Freelancers

Cash flow problems have always been an issue for small businesses, though according to PYMNTS data, the pandemic period has added urgency to the issue. Some 37 percent of Main Street small and midsized businesses (SMBs) reported experiencing cash flow shortages within the early months of the pandemic, with 26 percent tapping their personal credit cards to even out shortages. Twenty-three percent asked family members or friends for help and 21 percent applied for loans.

A massive part of the problem, Colin Gunnell, co-founder and CEO of Penny, told PYMNTS in a recent conversation is that SMBs have to spend too much time chasing payments or speeding them up. Gunnell’s company is a platform that allows small businesses, freelancers and the self-employed to create, send and finance invoices.

On average, in the UK, where Penny is headquartered, he said, small businesses will spend 32 working days per year chasing down and recovering the payments they are owed.

“Payment cycles globally and traditionally are kind of skewed towards who — who has the most power in the relationship,” Gunnell said, leading to a “crazy bonkers” system where businesses have to plan to spend a full month of their time and treasure handling financial administration. It wasn’t a system that Gunnell had ever planned to take on or for which to create a solution. But the problem forced itself upon him when running a chartered accountancy firm where he kept hearing variations of the same question: How can you help me get my bills paid faster to alleviate the massive cash flow problem that waiting 30-60 days to get my invoices paid is causing?

“We had this question that was thrown out to us for ages, and we always said, ‘we can’t. We’re accountants; we can’t do these sorts of things,’” Gunnell said. “Until one day, I sat down with a chum of mine and I realized that these guys aren’t really asking us questions about funding. What they’re actually after is a time machine. They want to remove the time between raising a payment after they’ve done stuff, whatever that may be, and getting paid for it.”

And that, he said, was a problem they could solve with a couple of years, an excellent ecosystem of connections and a team of talented developers dedicated to taking on the problem. With a solution, Gunnell said, that is actually surprisingly simple. What Penny does, essentially, is buy out SMBs invoices at a discount, at which point the invoice holder gets paid (slightly less) instantly while Penny gets ownership of the invoice and takes on the collections process. How much that invoice will be discounted, he said, is determined by a team of “very clever data guys” tasked with assessing various data streams and determine the risk of “something going squiffy on a transaction.”

And perhaps more critically, he said, is that they can do this fast — on average, about 15 to 17 seconds to review an SMB invoice and make an offer on it.

“It means that they can just log in and very quickly see this is doable,” he said. “I can get paid early. This is going to be the cost. And it’s very clear and it’s very transparent. We don’t, because we never set off to be a traditional funder with a ledger, need an extensive process based on the risk profile of X, Y, and Z.  It all starts becoming very annoying for the sake of it. We just want it where it can be as simple as possible.”

Simple is what small and even microbusiness owners need. Otherwise, they are engaged in operating a business they are trying to grow without the bandwidth to spend a month of every calendar year trying to run down money owed for goods and services they have already provided. What they want and increasingly need, he said, is an experience that is simple and transparent to them. Because more than they want their customers to value the funding part of their service, he said, they want them to value the experience itself as non-onerous. SMBs, he said, increasingly have many choices when it comes to how they solve for their cash flow crunch. Why would they want to surround themselves with painful, friction-filled experiences going forward if they didn’t’ have to?

Moreover, he said, it’s better for the world if these businesses can grow instead of being crushed to the point of closure by a cash flow problem. Because, Gunnel said, the amount of value the freelance and small business workforce brings to economics on the whole is pretty simple: make it easier for them to do the things they actually want to do instead of forcing them to burn daylight in a frustrating cycle of collecting payments.

“The future of Penny, I think, is absolutely going to be connected into how do we champion these individuals,” he said. “How do we allow them to be free to follow these business ideas and to scale and drive forward by themselves? How can we actually do it within an experience that feels more like you’re grabbing an Uber rather than applying for a bank account?”

Part of the future of Penny also lies in collaboration with freelance booking and payment platform Fiverr. Fiverr freelancers get 20 percent off Penny fees and in return, Penny users get a discount on Fiverr membership.