One invoice financing platform is using blockchain to give business owners a safe and sustainable alternative to the PPP loan — here's how it works
Invoice financing platform Crowdz is looking to help business owners strapped for cash after burning through their PPP loans. The company uses blockchain for security, but also to help break into a global market. "We want to grow an exchange that goes globally for invoices so that anyone in the supply chain can help facilitate other companies in the supply chain," Payson Johnston, cofounder and CEO, said. He advised that business owners set net-30 or net-60 day terms on their invoices to get more value for their invoices if they need to be sold into an invoice marketplace. Click here for more BI Prime stories.
Just over four and a half million companies in the United States have received assistance from the Paycheck Protection Program (PPP) since it launched in early April. But that still leaves tens of millions of businesses struggling to remain afloat, while others who did get help are coming to the end of their funds and wondering what to do next. Some businesses like these are turning to one company that's thriving in this tricky financial space: Crowdz, which provides an alternative to the PPP through its crowdsourced model where funders compete to win the opportunity to finance invoices. The system, secured on the blockchain, helps businesses regroup for the long term when government funding sources run out. "It's been a little crazy — we went from roughly 450 companies pre-pandemic to almost 17,000 on our system as of today," Payson Johnston, the company's cofounder and CEO, told Business Insider. "There's a huge need to get cash immediately, especially for post-PPP funding to fund invoices, as you start needing to hire people back and purchase supplies. [Business owners] are aware that they need cash, and in the past, this wasn't as much the case." How crowdsourced invoice financing works Based in Sunnyvale, California, Crowdz is a marketplace where a variety of funders compete to finance invoices in return for a fee. Users choose the exact financial and other terms that are most advantageous to their businesses, as well as which invoices they want to sell, whether that's just one, a few, or all those outstanding, and whether that's the smallest or the largest receivables on the books. "We're democratizing the ability to access cash," Johnston said. "What the Crowdz name is about is allowing SMBs to join up together to get better rates together. In the background, what we do is basket up invoices and then sell them off to a bank or a hedge fund. This way, the SMBs get a much better rate." Andy Chen is one business owner who's benefitted from Crowdz. When Chen realized he would need additional cash to fuel the growth of his Houston, Texas-based nursing staffing company NurseDash, he first turned to the PPP, but it just wasn't enough.
"Our business and payroll expenses have been more than double, so the money lasted less than the two months program was designed to be," he said. "We needed a modern way to access growth capital. Invoice financing is a powerful tool to grow the business, especially for a startup on a hyper-growth trajectory." Chen said he was especially pleased with the solution that Crowdz provided because it enabled him to retain control over how he used the tool. "[Invoice financing] has to be used responsibly and that's why we have been pleased with Crowdz," Chen said. "We are not obligated to finance all of our receivables at all times." Fred Bean, CEO of REBEL Travel Corporation, a technology company working in the hospitality space, serves hotels as well as companies seeking software development work, and as both his major clients have been impacted by the pandemic, it's made a slow payment process worse. "Some of the larger hotel chains can take up to 90 days to process payments, and the onset of COVID-19 further exacerbated that situation," Bean said. "So while we had a short-term cashflow challenge due to the pandemic, we were also looking for a long-term solution."
For REBEL, Crowdz was able to meet both needs. "We have only financed half a dozen or so invoices thus far," he said. "Now that we have a good handle on the system and the process, we do have another two dozen or so invoices that we'll look to finance through them in the near future." Crowdz also white-labels its solution, offering enterprise-level companies the opportunity to operate its invoice marketplace under their own brands so that these larger businesses can provide access to cash flow to the companies in their supply chains. Johnston highlighted a recent Harvard study indicating that most US SMBs only have enough cash on hand to survive two weeks, and as a result of the pandemic, enterprises are now taking an interest in that fact, given that it's shown to impact their own ability to produce goods. "Enterprises are very aware of their supply chains, where they are now coming to us and asking, 'How do I help the small to medium businesses in my supply chain survive and thrive in this situation,'" Johnston said. "There's been a real attitude shift there, where on the enterprise side, they really want to help the SMBs, realizing that otherwise, they can't stay in business themselves." Blockchain gives Crowdz customers a head start on the international scene in invoice financing When it comes to blockchain, Crowdz hasn't just added a layer of security — the company is invested in the future of invoicing and payment exchange on an international basis. Johnston, who served for 18 years as the global B2B supply chain senior manager for Cisco, built Crowdz on blockchain so that his company would be part of the infrastructure for smooth cross-border ecommerce and supply chain financing. The importance of reinforcing global supply chains has been highlighted more than ever by the pandemic, Johnston said. He places a priority on the integration of non-US customers into the company's system. "We want to grow an exchange that goes globally for invoices so that anyone in the supply chain can help facilitate other companies in the supply chain," Johnston said. "The PPP program is focused on American companies, but most supply chains go outside of America, and so a small company in India, China, Europe that's shipping into a US company can also go down and shut down companies here in the US. We want to help reinforce that chain." Risk management during the pandemic Beyond reminding business owners that they're not out of options just because they've exhausted their PPP or other government funding and don't have access to traditional credit, Johnston's team also helps customers assess risk management. "As you manage your cash flow, think about your internal and external operations — your suppliers, your partners, your customers," Johnston said. "If you can come up with win-win solutions it creates a growing ecosystem that limits the risk that one company will go out of business because they are being squeezed." Johnston added that while it's intuitive to make invoices payable upon receipt in an attempt to spur cash flow, this tactic is actually limiting. "Set net-30 or net-60 day terms on your invoices, aligning your terms to those in which your customers actually pay you in," Johnston said. "This enables you to get more value for your invoice if it needs to be sold into an invoice marketplace. If you set your invoice terms as pay on receipt, most funders or banks will not buy your invoices." Finally, Crowdz also helps its customers optimize their cashflow management practices, in terms of both payables and receivables. Johnston recommended leveraging credit, receivables financing, and early payment programs in order to ensure that cash flow remains strong, and said that pre-applying for these programs when you don't need them will ensure they're in place when and if you do. SEE ALSO: How solo entrepreneurs can pay themselves with PPP money or reapply for a bigger loan while making sure they qualify for forgiveness Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
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