Jonah Schnel is Co-founder and Chairman of Fast A/R Funding, a firm that helps startups and small businesses get alternative funding through invoice factoring. Jonah tells us why Fast A/R Funding provides an incredibly valuable service and explains the importance of being able to close the gaps in invoicing that can block the cash flow of small businesses that can’t afford delays.
1. What is Fast A/R Funding and what does your company do?
Fast A/R Funding is an invoice factoring firm. Most small businesses have accounts receivable on their books, which is created at the time the company generates an invoice to its customer after goods are shipped or services are rendered. The accounts receivable ultimately gets turned into cash for the business when the customer pays invoice when due (but sometimes late). So, small businesses sometimes have to wait 30, 60, or 90 days to get paid. The gap of timing in cash flow can be troublesome for companies that are experiencing growth or have other areas where they need to spend cash today (if they had it!). Some of these areas are 1) making payroll, 2) purchasing new raw materials or wholesale product, 3) investing in technology or marketing, 4) paying quarterly tax payments, 5) etc…the list goes on and on. This is where factoring comes in. A company such as ours provides cash advances against those outstanding accounts receivable so businesses can use the funds today.
2. What is your role at Fast A/R Funding?
I’m the co-founder of Fast A/R Funding and Chairman of the firm. I assist our staff with the overall strategy and credit policies. We invested a lot of time and money in building an exceptional technology platform so we could automate the entire accounts receivable management process and also streamline the client underwriting process. The use of technology sets our firm apart from others, along with our keen focus on small businesses and prompt client service.
3. What inspired you to found Fast A/R Funding?
As someone who has been very involved in start-up company finance through my historical venture capital investing activities, I saw a big need in the market for non-equity based financing for growing companies. Typically companies will raise Angel and Series A financing rounds to turn an idea into a prototype, a prototype into a beta product/service, and a beta product/service into a full blown, production quality product/service offering. Most companies do this work in close conjunction with some large customers to receive important validation along the way and shape the end result such that it is further tuned to what the end customers will want. At this point, most companies look to raise additional equity, and hopefully at a higher valuation. However, if companies can generate sales from these large customers as the begin to ramp, they can look to another form of finance to push off raising the additional capital. This kind of finance is called invoice factoring and basically is a way for companies to pull cash forward from sales made to their customers and not have to wait extended time period to be paid. Why would a startup want to do this? Presumably, if business is going well, the growth in sales, addition of new customers, and further validation of the product/service offering increases the chance of raising additional equity at a higher valuation. The end result is that the founders of the business (and the previous investors already in the deal) can own more of the company after the next funding round.
4. Tell us more about your technology platform and what makes you an innovative company.
The receivables management process is not simple. There is a fairly detailed process from booking initial sales through the collection of the actual cash from a customer and it involves multiple areas of a company from operations to accounting. We saw an opportunity to build a 100% paperless and online system that would do two things: 1) allow us to properly manage receivables in terms of the basics a finance company must do (when validating and valuing a continually changing pool of collateral, the outstanding invoices) and 2) save our clients money by outsourcing the delivery of the invoices to their customers as our system does both email and snail mail deliver at no additional cost. Also, there are some really cool benefits of having everything online, including the data. We can do things like offer some great analysis tools like real time aging reports and full transparency of fees/charges and also, automatic payment notification, which is one of our client favorites. With automatic payment notification, our system provides our clients an automated email with a scanned copy of the remittance check and back up documentation every time a cash payment is applied on their account. They know exactly when payments arrive and can see them online with the click of a button.
5. What has been the biggest challenge in building your business?
The biggest challenge we have is honing our marketing initiatives. The small business universe is just so large here in the United States and we offer factoring services all over the country. So, spending the time to develop various and specific channels to get the word out regarding our financial product/service can be tough. I heard a great quote from a friend of our firm; he said our current marketing initiatives are like “trying to boil the ocean.” This is so true. So, we need to continually find niche areas where we can customize our messaging and then deploy in a manner that prospective clients will understand our core values (which are to operate efficiently and with full transparency and integrity).
6. What does the future look like for Fast A/R Funding?
We think the future is very bright. There will always be a market for start-ups and small growing businesses to need new funds for growth. We love the idea that financing with a firm like ours adds the needed oil to these companies engines as they speed up. We have a great time around the office talking about all the cool companies we come across doing amazing things. At a high level, this is the kind of success that has driven our country for many years and considering the current economic climate, it is of paramount importance that it continue.