BlueVine brings invoice financing into modern world
The founder of a new technology platform is using cloud technology to bring a 4,000-year-old financing technique into the 21st century, and in the process fill a void in the marketplace.
That is commonly referred to as invoice factoring, a process which dates back at least 4,000 years to ancient Babylon, BlueVine Founder Eyal Lifshitz said.
Invoice factoring began to be used by the garment industry in the United States a century ago, Mr. Lifshitz explained. Companies would deliver product to a manufacturer or retailer, who would have 30 or 60 days to pay the bill. Cash flow patterns and other issues often meant invoices were paid at the very last moment, which would leave suppliers in a cash crunch of their own. Meeting payroll or their own supplier deadlines could be challenging.
With invoice factoring, the company holding the invoice sells it to a third party at a discount rate. It is then up to the third party to collect the bill, with their profit margin being the difference between what they purchased the invoice for and what they collected.
Mr. Lifshitz first learned of invoice factoring as a child watching his father run his own small business. He said invoice factoring is a solid concept which had not changed in 100 years.
“Especially given the new technology, I began asking myself ‘how can we flip this?'” Mr. Lifshitz said.
The gap between delivery and payment time can be challenging for many companies, Mr. Lifshitz said, especially when dealing with larger clients.
“The larger the company, the more terms they demand.”
“If you have enough cash, you can bite the bullet and pay your expenses, but not every company is able to do that.”
Such companies need a solution to help them in the short term, and as Mr. Lifshitz began developing a business plan he saw there were few options for smaller businesses.
Larger businesses have more options available to them, including invoice factoring, Mr. Lifshitz said. Banks like Wells Fargo offer it, but for larger sums like $10 million. Many more offer amounts starting at $250,000.
Such companies do not often swim at the shallow end of the pool, and even if they did, they lack the innovation to make their services a realistic option for the unique needs of smaller businesses, Mr. Lifshitz said.
For those that even have a website, their on-boarding process is cumbersome, to say the least, he noted, citing examples of companies where it takes as long as two weeks to completely onboard documents. Others need you to fax invoices or to send the originals via overnight courier.
Then there is their fee structure. Many are complicated and come with hidden charges.
In contrast, Mr. Lifshitz said a client can go to the BlueVine website and open an account in two minutes. After a simple registration process, a client connects their cloud accounting software with BlueVine in order to assist them with underwriting. Those companies without accounting software can create invoices within the BlueVine dashboard, enabling them to participate, he added.
“We can approve funding in as little as 10 minutes. If the user selects ‘wire’ as their payment method, they can have the money physically in their bank account as soon as four to five hours after it’s transmitted – it can actually be even in 15 minutes if they are in the same bank as us – Wells Fargo,” Mr. Lifshitz said.
BlueVine’s fee structure is so simple they have a small calculator on their landing page to show companies how much they receive from a specific invoice, Mr. Lifshitz said. All they have to do is enter the invoice amount and how far into the future it is due and they are provided with an immediate figure. A $5,000 invoice due in four weeks provides $4,250 (85 percent) of the amount upfront and an additional $550 once the invoice is paid to BlueVine, leaving the customer paying a four percent fee. Regular customers and those with credit lines above $20,000 receive seven better rates that run as low as 0.5 percent per week with a 90 percent advance rate, Mr. Lifshitz added.
Because the BlueVine system initiates transfers every 30 minutes, a request can be funded in as little as four hours, Mr. Lifshitz explained.
“We want to create a PayPal-like experience.”
Mr. Lifshitz acknowledged the level of trust a client has to place with BlueVine in order to share their accounting system, Social Security number, and other information.
“It is a delicate balance between not being too intrusive yet getting the information we need to make proper decisions.”
“Our philosophy is if there is any way to get the information by not asking the client it creates a better user experience.”
A quicker user experience can also often be a better one, so if BlueVine can find simple information such as incorporation data online, they save the client the time, Mr. Lifshitz said. He added that experience can also be enhanced by question sequencing and even page layout.
“Too many questions on one page overloads the experience while too many pages make the experience seem lengthy.”
That striving for clarity is an ongoing process, Mr. Lifshitz said, and one which BlueVine pays constant attention to.
“Over two years some things have become obvious to us. One is you have to get regular feedback from customers.”
When working with clients, BlueVine will sometimes ask them to share their screen so they can see different stages of the user experience from the customer perspective. They pay attention to any areas where the customer becomes uncertain of how to proceed, Mr. Lifshitz said.
Another differentiation point when comparing companies is to look for which ones have a telephone number on their main page, Mr. Lifshitz explained. Those companies dealing with smaller average amounts seldom do, because the added cost of customer service cuts deeply into profit margins. OnDeck has a telephone number on their site and so does BlueVine, Mr. Lifshitz said, before adding the average amount sought on BlueVine is between $20,000 and $30,000.
Mr. Lifshitz cautioned there is a balance between maximizing convenience and appearing too slick to potential customers entering the space for the first time. Because the broader marketplace lending industry is so new, they have to establish initial trust with a significant portion of their client base. That means having a logical application process and sufficient detail so the person in search of financing can make informed decisions.
Those considering using BlueVine’s services have little to lose, Mr. Lifshitz said. While old-school invoice factoring firms lock people into a minimum six-month contract and do not allow companies to select which invoices they wish to receive advances for, a company can submit one invoice and never contact BlueVine again, and they have complete control over which invoices they seek advances for.
The fresh set of eyes on a centuries-old industry allows BlueVine to work with many companies who have trouble even finding affordable solutions in the new economy, Mr. Lifshitz explained.
BlueVine works with many companies under one-year-old, for example. If those companies have clients with established credit histories, that lessens the risk.
“If a new company has an invoice from T.J. Maxx, we know it’s going to get paid,” Mr. Lifshitz said.
BlueVine has won several awards for innovation while attracting $4 million Series A and $18.5 million Series B funding. I asked Mr. Lifshitz how BlueVine differentiated itself when seeking funding in what has become a more crowded field of marketplace finance.
“Investors are very familiar with different types of financing companies,” he said. “There’s a ton of companies around but many simply haven’t heard of them.”
Using the example of OnDeck, Mr. Lifshitz said they did not invent the merchant cash advance, they presented it in a different way which allowed for a better experience. So much like the 4,000-year-old concept of invoice factoring, the core concepts are familiar to investors. And given the number of specific areas such as real estate, auto loans, and invoice factoring, be careful you are not comparing apples and oranges, he cautioned.
The future of marketplace finance, whether the sector is apples, oranges or papayas, will likely feature two or three dominant players in each space, because smart early entrants will lock up the top channels and partners, Mr. Lifshitz predicted.
For Eyal Lifshitz, it all comes back to doing something he loves. Perhaps because of what he learned watching his father run his own business as a child, Mr. Lifshitz said his first thoughts on any development being considered is what effect it will have on the small business operator. Then he thinks about the product experience.
That perspective was fostered by the three years Mr. Lifshitz spent in Israel’s venture capital industry.
“I probably met with 1,000 entrepreneurs,” he said. “When you see a product that makes you go ‘wow’ you knew it would be a success.”
“With BlueVine, I am constantly thinking about how we can make people say “wow.”
Editor’s note: Updated July 3, 10:04 a.m. MDT to clarify the connection between the accounting systems and the cloud.