Getting credit as a small business is a challenge. Tracking credit card use and detecting fraud or misspending can be even trickier.
This can become a critical issue when margins are already tight. That realization was the lightbulb moment for start-up veteran and banking pro Farhan Ahmad.
Mr. Ahmad’s background, combining experience at companies both big and small, has resulted in Bento for Business, a business credit card alternative providing real-time control over employee spending.
Mr. Ahmad said companies around the world lose $3.7 trillion each year through employee misuse or outright fraud, with the average company taking a $280,000 hit. That is big bucks when you consider four of five companies have fewer than 100 employees and half employ less than 25.
Then note a small business owner’s personal credit rating can be damaged by employee fraud, Mr. Ahmad added.
Sometimes the losses are indeed outright fraud, where the employee syphons company funds to fund their lifestyle. Often it is more benign, like an employee filling up the company car also buying himself a sandwich and a drink. Like a leaky faucet left unattended, those little incidents add up.
No one is helping the small business owner with this problem either, Mr. Ahmad explained.
“Banks struggle to help small businesses,” Mr. Ahmad explained. “It is not an attractive proposition for them.”
At some point banks realize they have to offer small business owners something, so they provide a top-down solution based on some product they developed for more profitable large companies, ones with 15 or 20 people available to make that it work. Ed’s Garage does not have such a luxury.
Cash flow is an issue for these companies, Mr. Ahmad explained, and the solutions provided by big banks usually involve short-term loans, which do nothing to address the problem at its roots.
What if you could develop a solution that helps the small business owner keep more of the money they already have?
That is the idea behind Bento.
A small business may have three or four people needing a company card to cover expenses, but because each job has unique spending requirements, a one-size-fits-all solution does not make sense, Mr. Ahmad said.
Bento lets the small business owner set different budgets on each individual employee expense card. The delivery driver with a regular route can be assigned an amount which safely takes care of fuel requirements. Sales staff have the ability to entertain staff and pay for last-minute travel.
A common problem with normal card misuse is how long it takes to detect an issue, Mr. Ahmad explained. If a company has 15 people with expense accounts and charge cards, there will be 15 monthly statements, which then get filed away at month end.
Bento addresses that problem by providing a dashboard so employers can instantly see employee spending levels, purchase locations, and long term records. Abnormal spending patterns will be quickly detected, Mr. Ahmad explained. Perhaps purchases are being made at a location outside the employee’s normal travel area, or the goods being purchased have nothing to do with the work being done.
Should a company’s fortunes quickly change, spending limits can be adjusted with a click. If a card has been stolen or abnormal spending be detected, the card can be deactivated with a click or a swipe. Once the situation is resolved the card can be reactivated with the same ease.
This functionality is especially attractive to small businesses susceptible to seasonal cash flow changes, such as tourism-related industries, Mr. Ahmad said. Once the tourists go home, card limits can be decreased until their return.
If you think expensive and ill-suited credit solutions from banks are a problem, try getting along with no solution whatsoever. That is a problem for many small businesses, including Bento, during their first two years of existence.
“Seventy percent of credit applicants get declined because of their lack of credit history,” Mr. Ahmad explained. “It happened to us even though we had money in the bank.”
Because Mr. Ahmad worked at Barclays and JP Morgan, he understands what motivated them and why they chase bigger game.
He also cuts them a fair amount of slack, because they have constraints the startups do not have to deal with.
“Banks do a good job in many of they things they do and in the areas they want to serve,” Mr. Ahmad said.
“Their legacy systems support 50 different programs. To do that well, the infrastructure is very expensive, so they charge more.”
“It is one thing to do something well and service it in a very cost-effective manner. It is something else to do that with 50.”
Because of Bento’s low-cost structure, including the use of cloud-based technology, they can be “really super hyper-focused on service,” Mr. Ahmad said.
One customer service component still in development is the creation of social networks which will allow small business owners to share tips, frustrations and lessons with an understanding audience.
Another important tactic is working with companies to develop a systemic way to broker the trust relationship between the company and its employees, Mr. Ahmad explained.
To illustrate this point, Mr. Ahmad described a conversation he had with a small business owner who described an incident with one of his employees.
The employee had been given some money to make a purchase, and instead of giving back the leftover money, he took his wife out to dinner. The owner did not want to fire the employee, because he had no idea if the next one would be any better, and the employee did have some tenure with the company.
Bento’s presence alone helps reduce or even eliminate such incidents, Mr. Ahmad explained. Because employees know a new expense tracking system is in place, they are less likely to commit outright fraud or to buy that submarine sandwich because they know it is easily detected.
Mr. Ahmad likened it to raising children. You place limits on their social time and other activities not because you necessarily expect them to constantly do something but to simply let them know you are watching. That constant presence is a valuable tool and one of Bento’s strongest features.
Rome was not built in a day, and if you save a few dollars here and there it can soon add up to something significant, Mr. Ahmad said, like a family vacation or Christmas gifts.