With Steven Uster, CEO of FundThrough
Steven is the Founder and CEO of FundThrough, a North American accounts receivable firm that has provided billions of dollars in bridge financing to help small businesses scale. His firm is also a fellow recipient of the Best Places to Work Award. Today Steven is going to share some valuable knowledge on how inventors, startups, and small manufacturers can understand how big buyers like wholesalers, distributors, and retailers use credit terms when purchasing your products, and what you can do to bridge the gap between delivering your product and getting paid, something which is quite important for a small and scaling consumer product business.
Today you will hear us talk about:
- Bridge Financing, Accounts Receivable financing
- It allows you to pay your suppliers
- The clock doesn’t start ticking on you getting paid until the invoice gets through.
- Get your invoices paid faster
- How bridge financing helps with scaling
- Small businesses that land a big sale
- Larger customers have a lot more control on how they get paid
- Use Quickbooks Online, makes financing very easy
Episode 99: Accounts Receivable Funding for Big Orders
With Steven Uster, CEO of FundThrough
00:00 | Kevin Mako (KM): Hello product innovators. Today, we learn from a Growth 500 founder on how to get funding right away on your big buyer invoices, as you scale your product business.
00:12 | Voice-over: You’re listening to the Product Startup Podcast. The show that helps bring your product idea to life by chatting with successful inventors, product developers, manufacturers, and hardware industry professionals. Our goal here is to get to the bottom of what makes a product successful, from initial idea to getting your product on store shelves. We’re taking you step-by-step to build a functional product and scale your product business, hosted by Kevin Mako, one of North America’s leading experts on hardware development for small product businesses. Now on to the show.
00:48 | KM: Welcome back everyone. Today, I’m very excited to introduce Steven Uster to the show. Steven is the founder and CEO of Fund Through, a North American accounts receivable firm that has provided billions of dollars in bridge financing to help small businesses scale. His firm is also a fellow recipient of the best places to work award. Today, Steven is going to share some valuable knowledge on how inventors, startups, and small manufacturers can understand how big buyers like wholesalers, distributors, and retailers use credit terms when purchasing your product and what you can do to bridge the gap between delivering your product and getting paid, something which is quite important for all small and scaling consumer product businesses. Now on to the episode.
01:27 | KM: Hey, Steven, welcome to the show.
01:29 | Steven Uster (SU): Thank you very much. I’m honored to be here, thanks for having me.
01:31 | KM: We’re excited to have you on today to talk about bridge financing and accounts receivable financing, especially for scaling manufacturers, scaling product businesses that are getting out of the startup phase. But first and foremost, I was really intrigued by your story of how you built this business, which is, you made massive lists of top growing companies and whatnot, but it all started from you watching your grandfather sell coats.
01:54 | SU: Yeah, that’s true. So, back in the day, my grandfather would manufacture coats and he would sell them. And when he would sell the coat, he would give you the coat and the customer would give him the money, he would give him the dollar and they would take their coat and they’d go their merry way. And over time, it became… He would give you the coat and then the customer would take ten days to pay. And then, it would take thirty days to pay. And now, the average is like 60 days to pay. So, my grandfather’s cash would’ve been all caught up in that coat that was in somebody else’s hand that somebody else was enjoying.
02:34 | SU: But he wasn’t getting paid for it, which meant he couldn’t pay his own bills or grow his company. So, I saw that and I figured, you know what there’s a way to use technology to really make this a seamless process so that everybody could get paid right away, as soon as they invoice and that they don’t have to wait on payment terms.
02:56 | KM: That’s amazing. That’s a long standing backstory, I don’t think we’ve heard one that goes back that far to someone’s childhood and emerges through to building the big business that you have today. Explain what the terminology here is bridge financing or accounts receivable financing. Just give a bit of an explanation to everybody, what do those terms mean? What are they? And then we’ll get into best practices and tips and what really… Especially in the startup phase, what early stage product innovators should be thinking about as they start to scale and potentially land those bigger and bigger customers?
03:31 | SU: Yeah. So, accounts receivable financing refers to when you invoice your customer and you have set payment terms with that customer, there’s a gap between when you send the product and when you get paid. Accounts receivable financing, bridges that gap. So, it provides you with the cash immediately upon you invoicing, so that you can then use that cash to be able to grow your business and use payment terms instead of as a detriment, almost as a competitive advantage.
04:03 | SU: Because, now, you can offer extended payment terms to your customer and not be worried that it’s going to take them thirty, sixty, or ninety days to pay that invoice, because you’ll have that cash up front. And the way I describe it, is almost like instant payments for small businesses who are punching above their weight, predominantly selling to larger customers. And, if you compare that to small businesses who are selling to other small businesses or small businesses who are selling to consumers, they have a solution already.
03:37 | SU: They can accept credit cards, or they can accept wire transfers, they can have a PayPal account, a square account, or anything like that. And when they send an invoice, they can send a link for their customers to pay. But as you or any of your listeners might know, if you’re selling to big companies, that’s not going to fly. Dell is not going to pay you by credit card; they’re going to pay you on their terms, which typically is, by check or by wire. And they’re going to pay you when contractually you’ve agreed to, which tends to be thirty or sixty days down the road, this is that gap that we’re bridging.
05:14 | KM: And that’s so important to think about when you’re in the manufacturing business especially. Because, whether you’re selling to these wholesalers, distributors, retailers, other bigger companies, they have power and they have clouts, so they’re going to bully you essentially into these longer terms. And this is quite common in the industry. I would argue that probably most of the medium to bigger players, when you’re talking about selling hundreds or even thousands of units of something, are going to be looking for some form of terms.
05:40 | KM: And why this is so important to a product business is that you have to pay your suppliers to deliver that. So, there’s a gap, there’s a point where it’s great, you just made that five hundred thousand dollars sale to Walmart, and you’re all excited, but now you have to manufacture five hundred thousand dollars’ worth of goods. And, especially if this is a big leap for an emerging startup or a scaling brand, it’s not always easy. Or maybe you land two of them at the same time or whatever else the situation might be.
06:07 | KM: And the last thing you want to do is turn down a customer that’s paying for your product. So, Steven, can you just talk a bit more about some of the benefits or around the kind of manufacturing and boxing in that financial chain, making sure that bridge financing is there and available when you need it, so that you could focus on growing and scaling as opposed to the pain point of cash crunches.
06:28 | SU: Absolutely! Yeah, so the key here is trying to match your supplier payments with your customer payments, which is richly impossible to be able to do, as you’ve just said, Kevin. So, if your customer payment terms are longer than your supplier terms, you are stuck in the middle as a small business. And being able to get paid right away, enables you to bridge that gap. It also enables you to invest in your business, knowing that right away when you sell something, you get that cash. Because it’s not just the revenue, revenue isn’t always cash, revenue turns to cash when accounts receivables get paid, when invoices get paid.
07:11 | SU: So when that cash comes in, you can now invest in your business. And really, it allows you to do what you do best, which is go out and develop, manufacture, design, and sell. And, you don’t have to worry about sort of the back office side of things of collecting, following up, sometimes even issuing invoices, especially if it’s a seamless product that integrates directly into your invoicing software. So, for example, Fund Through integrates directly into QuickBooks online, so that you very seamlessly, when you issue an invoice, can get that invoice funded right away without having to wait.
07:55 | KM: What are some of the pitfalls that you’ve seen in terms of folks getting paid? I know one of the big ones is that… Something you mentioned before the show to me is that a lot of people, when they look at a sixty day term, they think, okay, well, I can float that, but you don’t realize that’s sixty days from the point of delivery. Also, that’s from the point in which you actually deliver that invoice, so you have to be very careful. And as well as, this is a big corporation, you may not always get paid exactly as per the terms in the agreement.
08:23 | KM: In fact, there might be clauses in there that you have to be very careful of that may extend that. So, what are some of the pitfalls and what are some of the solutions that you see when kind of addressing some of these issues to make sure that the startup, as it scales, doesn’t get in an impossible pinch?
08:39 | SU: That’s exactly right. Is that… The fallacy out there is that, well, I have just delivered the goods and my customer has accepted the goods, they love the goods, the clock has started ticking now at that point, and I’m going to… I know I’m going to get paid and whatever the contractual terms are thirty days or so. That’s not the case, because you are typically dealing with different groups within the company. So you’re dealing with your buyer within the company, which is different from the accounts payable group.
09:09 | SU: The accounts payable group will pay invoices based on when they receive them. And one of the pitfalls that I see often with entrepreneurs is that they take a long time to actually do their bookkeeping, to do their invoicing, because they’re busy producing, and they’re busy designing, they’re busy selling, and they just don’t have the back office to do it. I would suggest that you pick a day, a week, and you get caught up on all of your invoicing, if you don’t invoice immediately upon delivery.
09:42 | SU: If you wait a month or you wait for a period of time, you’re going to wonder why you didn’t get paid, and your customers are going to say, why did I never get the invoice? Or I got the invoice on this date and the clock started ticking on that date, so you’re going to get paid sixty days after that date. The other thing to be mindful of is, the cycles of accounts payable, so, it’s not exactly that you’re going to get paid on the thirtieth day or the sixtieth day, that’s possible, but we rarely see that in our business.
10:10 | SU: What ends up happening is that there’s a cycle. So if you invoice prior to this date within the month, the checks will be cut two weeks after the end of the month. But if you miss that date, you wait until the next month, regardless of whether it’s sixty days or longer. So you want to understand what that is within your customer’s framework, so that you can prepare your invoicing to be able to meet the cycles. The other fallacy, the other thing that I often see, and I often pound my fist on the table saying, don’t do it.
10:44 | SU: Is that, customers will give discounts, sorry, suppliers will give discounts to their customers to get paid early, but they’ve never really done the math. I often will ask, when I’m speaking in front of conferences of small business owners, I’ll ask if anybody has ever given a discount to their customer to get paid and inevitably, three quarters of the hands go up. And I’ll ask people just to yell out, what’s the range of discounts that you’ve given to your customer to get paid early? And people will say, I give two percent, I give three percent, some people would say, I give a ten percent discount if they’ll pay me early.
11:18 | SU: And most people will think about it in terms of a discount, but they don’t think about it in terms of, what that means, in terms of the rate, the interest rate that they are funding their own receivables at. And, I will pound my fist on the table and say, it is always cheaper and easier to use an invoice factoring platform, an invoice funding platform. Whether it’s Fund Through or a different one, it doesn’t matter. Then it will be to give your customer a discount to get paid earlier.
11:47 | SU: You get paid the way you get paid, and then you pay a fee to the invoicing platform in the same way you might pay a credit card fee to accept credit cards. Those are some of the tips that I’ve come up with over the years.
12:00 | KM: Those are good insights, like really good stuff. I appreciate that. And, to think about what you’re mentioning about the cost of that bridge financing, whatever. It’s for a very short period of time, it’s only… Generally, like it might be that sixty days, or plus production, or whatever it might be, it’s a few months let’s say. So, it’s really a minimal cost, when you look at it in the grand scheme of things, much more expensive to just give a blanket gross off the top deduction, that’s going to cut substantially into your profit.
12:27 | KM: So, all of that is really good tips and advice. And, I like the fact that you mentioned kind of using it in a more automated method. Because one of the biggest things that I’ve seen as well is, people who don’t follow up, don’t get paid. The squeaky wheel gets the oil, we all know that expression. So, one of the easiest things that you can do, you mentioned setting your kind of weekly reminders to either send out the invoice or whatnot. Well, in addition, once you’ve sent that invoice out, make sure that you’re following up.
12:56 | KM: And I think that matters, whether or not you’ve got bridge financing, because at the end of the day, the sooner you get paid, the less interest you’re actually paying for that bridge financing. But the reality is, the squeaky wheel does get the oil. So, make sure that you set that in your calendar to follow up. Because one of the things that I’ve seen with a number of clients when this stuff goes through is, one person will say that they never got it, or it went to the wrong person, or sorry they messed up, it went to the wrong division, or maybe there’s a little error that you made on the invoice or whatnot.
13:21 | KM: That means it’s not getting paid. And of course, there’s not really much value in them telling you about that, because all its doing is saving more money in your buyer’s account, the further this thing gets pushed along. And, a lot of these companies, especially, you know, some of them get bigger and they can get to be bullies. They can really push on a lot of these levers, which kind of hurts the small folks. And that’s where it makes a lot of sense to both make sure you’re covering your cash flow, but also, like anything else in business, do the due diligence on a weekly basis.
13:53 | SU: Yeah, that’s a great point, Kevin. We find that small business owners have no problem being very vocal when they’re selling. They will advocate for their product, they’ll talk about it. But as soon as they send that invoice, they get really shy about asking for the money. And the way I say to them is, you’re not running a charity, this is not a nonprofit, you provided goods or a service that your customer wanted. You deserve to get paid, don’t be shy about asking for the money that somebody else owes you.
14:27 | SU: And, oftentimes, as you’ve said, there are little tweaks to an invoice that might need to get fixed. And you won’t know about it, and it’ll just take on, and take on, and take on, until all of a sudden you realize, hey, wait a minute, it’s been six months and I didn’t get paid on that thirty days invoice. Let me go out and ask, and then you’re really tiptoeing around it. Be forceful, you deserve it, your customers will respect you. They want to know that you are stable enough so that you can continue to service them. And one way of being stable is, getting the cash to be able to continue to grow the business.
15:01 | KM: Absolutely! Cash is king. So, can you explain a bit more about how Fund Through works, specifically?
15:06 | SU: Sure! So, Fund Through enables small businesses to choose which invoices they want to fund, which customer they want to fund. And, you can do it on a one by one basis or you can do it all together. As I mentioned, we integrate directly with QuickBooks online. So if you do use QuickBooks online, you can either go to the QuickBooks app store, you can go to our site @fundthrough.com and connect. We ask you to connect your invoicing software, so that you then pull in your invoices directly into the fund through the dashboard. You basically click whichever invoice you want, we then sort of verify the customer data and the initial data is all accurate.
15:50 | SU: And then you get that money and deposit it into your account right away. And then we get paid when your customer pays that invoice, or whatever the normal terms are. Typically, to get set up, you first have to connect a few data sources and get sort of approved to be on the platform. And once you’re on the platform and your customers are approved to be funded, after that, and that could take maybe a couple of days to happen. After that when you invoice and want to fund an invoice, it’s the same day, you just click that invoice and you’re funded.
16:29 | SU: The way I describe it is your second invoice, is, you know, basically same and day or almost instant. The first invoice will take a couple of days to find, and then once you’re there, there’s no commitment, there’s no fees, you pay for it when you use it, you use it when you need it, and it’s that simple. The idea is to put the control back in your hands as a small business owner and level the playing field with your much larger customers.
16:52 | KM: Well, that’s great, super helpful, especially in manufacturing, like we talked about. Are there certain, like, sizes of customers or whatnot, like to the end buyers that… Or other approval criteria that either work or don’t work, or anything that you can touch on in terms of the type of buyers that would be approved through this program, but maybe also, some of the types of buyers that wouldn’t be approved through the program so that, you know, folks can kind of wrap their head around that?
17:17 | SU: Yeah. Absolutely! So we will let you know whether your customer is… According to our databases in our analysis, creditworthy, and therefore whether we expect that there to be any issues or no issues in getting paid by them. That’s actually a really valuable piece of information that we would give to you, that you likely want to know, regardless of whether or not you use a service like Fund Through, you want to know whether your customers are actually going to pay you, or whether they’re at risk of going bankrupt before they pay you, and then you sort of not getting paid.
17:50 | SU: So we’ll provide that information. An important thing to note for using Fund Through is that, we will fund that gap between when you have delivered the goods and your customer accepts the goods, or completed a service and your customer accepts that the service has been completed, and when your payment terms are. We don’t take the performance risk of you having to put everything together and manufacture it, and then send it on. So, what that means is, an invoice that would get funded, that would qualify to get funded, is one that is sort of a true sale, there’s no chargebacks that, you know, or no consignment sale, or sale…
18:34 | SU: Pay when paid contract terms there. If there are chargebacks, that’s okay. We expect that there would be chargebacks and not every invoice get paid a hundred percent and we account for that. But the key is to know that the invoice itself is done, like, you have done what you’re supposed to do, your customer accepts that you’ve done what you were supposed to do. Now you’re just waiting to get paid.
18:58 | KM: Yeah, that makes sense. And I guess that’s how it’s such an easily automated system. It’s once the delivery has been confirmed by the customer, and there is that gap, whether it be thirty or ninety, or possibly even more, then you’re there to that gap, which is quite important. I also really like that value add, you mentioned about that you first look into the buyer on the behalf of the manufacturer, that in and of itself is really valuable, because a lot of, especially early stage startups, you don’t have access to that kind of information, or you really don’t know how to get that type of information.
19:29 | KM: So this is something that’s exciting that Fund Through can really, almost, kind of behind the scenes audit who that customer is, before you jump in bed with that customer, because maybe, you’re right. Maybe this is a company that’s about to default, and that’s going to come down on you. That means you’re not going to get your money back. If they go bankrupt in the time that you’re waiting for those funds, you’ll never see them again. Or you’ll see very… Pennies on the dollar from that, if it goes into a bankruptcy sale. So, that in itself, I think is quite a valuable add on, especially as you add more and more customers to the list, it’s a really simple way to just vet them out, to make sure that that is the type of customer that you want to be selling to, beyond your usual vetting process.
20:11 SU: Exactly! Yeah. And have enough experience now with enough buyers out there that we could also tell you that, oh, despite you having thirty day terms, I could tell you that on average, this particular buyer pays you in 47 days, based on our history.
20:26 | KM: Oh, very nice.
20:28 | SU: So, you can plan a little bit that way. And this is all stuff, if you have a question about a new customer that you’re thinking about onboarding, reach out to us, no commitment. We’ll simply do our search and tell you, whether you should be mindful or not about that particular customer.
20:44 | KM: Well, I really appreciate that for our listeners. And as always, I’ll put all the show links, your LinkedIn, and your company website, and all that in the show notes. But, what is the exact company website just for anybody who’s listening in?
20:55 | SU: Yes, if you want to come check us out. It’s fundthrough.com. So that’s F-U-N-D-T-H-R-O-U-G-H.com.
21:03 | KM: Perfect! Steven, really appreciate you being on the show and sharing words of wisdom around us.
21:27 | SU: Awesome! Thanks for having me, Kevin.
21:09 | KM: Take care.
21:10 | Voice-over: Thanks for tuning in to this episode of the Product Startup Podcast. The show that teaches you what it really takes to bring your product to market and turn it into a big success. This podcast series is brought to you by MAKO Design + Invent, the original and leading firm in North America to provide global caliber end-to-end, physical consumer product development to startups, inventors, and small product business clients. If you’re looking for product development help on your invention, head over to Makodesign.com. That’s M-A-K-O design.com for a free consultation from one of MAKO Designs for design studios from coast to coast. Thanks for listening and see you next time.
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About: MAKO Design + Invent is the original firm providing world-class consumer product development services tailored to startups, small manufacturers, and inventors. Simply put, we are the leading one-stop-shop for developing your physical product from idea to store shelves, all in a high-quality, cost-effective, and timely manner. We operate as one powerhouse 30-person product design team spread across 4 offices to serve you (Austin, Miami, San Francisco, & Toronto). We have full-stack in-house industrial design, mechanical engineering, electrical engineering, patent referral, prototyping, and manufacturing services. To assist our startup and inventor clients, in addition to above, we help with business strategy, product strategy, marketing, and sales/distribution for all consumer product categories. Also, our founder Kevin Mako hosts The Product Startup Podcast, the industry's leading hardware podcast. Check it out for tips, interviews, and best practices for hardware startups, inventors, and product developers. Click HERE to learn more about MAKO Design + Invent!