Factoring For SMBs

Smaller firms, such as application developers and companies that sell products through online marketplaces, often have cash-flow issues that can impede their ability to thrive but not a whole lot of options available to help. In a recent PYMNTS.com podcast interview, PayPlant co-CEO Ronjon Nag shared how its Pay Me Now product is helping vendors doing business with the State of Illinois get paid faster so that they, in turn, can keep their inventories stocked and the wheels of business turning.

Increasingly, larger vendors are extending how long buyers have to pay so customers can float their expenses over a longer time period, often for as long as 120 days. Smaller firms, however, don’t have the luxury to support such interruptions in cash flow, so they need to get their money quicker.

A startup alternative-financing company called PayPlant is addressing such challenges by providing small and midsize businesses a digital invoicing service that reduces the interest on advanced funds while awaiting payment for their services.

In a recent interview with PYMNTS.com, PayPlant co-CEO Ronjon Nag noted that many smaller firms are at a disadvantage because they can’t pay employees and build up inventory while waiting to get paid. Though some “factoring” companies will work with companies to speed up the payment process at a discount, typically 80 percent or 90 percent of the owned funds, they’ll also charge interest that can be as high as 4 percent, he said.

(Jump to: 2:08) “At PayPlant, we’re doing it digitally, and so we’re trying to cut those rates to the 1.2 percent range,” he said. “That’s basically what invoice discounting means.”

PayPlant streamlines the process for uploading invoices via an extranet, enabling customer credit-history checks and leveraging technology to pass savings on advanced funds to clients, Nag said.

(Jump to: 12:08) “It’s a great space for alternative finance and using technologies to streamline the industry,” Nag said of PayPlant’s services.

PayPlant traditionally has focused primarily in tech companies, such as software developers. Or it might be sellers on Amazon waiting to get paid, which can take 45 days or so. Its only restriction is that funds be paid in U.S. dollars. Most clients are U.S. companies, but they don’t have to be, Nag said.

The B2G move

In one of its latest strategic moves, PayPlant recently ventured into the business-to-government market through a deal with the state of Illinois that also represented the launch of its digital Pay Me Now invoicing-financing service. As a Qualified Purchaser to the Illinois Vendor Payment Program, PayPlant is helping thousands of vendors owed billions by the state to get paid faster.

Pay Me Now enables companies to place purchase orders on the extranet and provides them a process to accept and upload invoices from the vendor. (Jump to: 7:05) “You can actually have a button so if the vendor wants its money now instead of waiting 60 days or 90 days, they can click the button and get paid right now at no cost to the customer who owes the money,” Nag said.

In the Illinois contract, PayPlant will pay vendors 90 percent of what the state owes up front, and it will pay the rest when Illinois provides the company the remaining amount owed, Nag said. Under Illinois law, the state must pay a 1 percent monthly penalty on late payments, a fee it now will pay PayPlant for its service, he said.

Capital for purchasing the invoices is provided by the associated PayPlant Alternatives Fund, which expects to lend $100 million in the next year.

Other companies may provide a similar service using software only, but PayPlant also provides the funding as well. (Jump to: 7:36) “Because we can do both, we think that the interest rate can be a lot lower,” Nag said.

App-developer help

Because of its origins in app-store development, PayPlant understands the issues developers face in getting their products sold. (Jump to: 8:42) “App developers have a problem – they need to get on the top of the list,” Nag said.

PayPlant will provide app developers with immediate advanced funds for invoices so they can support the marketing necessary to keep their products high on app store lists, Nag said. (Jump to: 8:45) “There’s 600,000 apps out there, and if you’re not on the top of the list, their app doesn’t get bought basically,” he said. “You have to market your app.”

To hear more from Nag on PayPlant’s products and strategies, click here.