Fundbox is a financing platform designed for small businesses and freelancers to help them get cash advances from outstanding invoices. Fundbox claims because cash flow can be a problem for companies that rely on invoicing, their service allows you to borrow money based on monies owed to you. This way, they say you can pay your own bills and employees in a more timely fashion without having to take an expensive loan.
How Fundbox Works
Fundbox is essentially a new type of invoice factoring, a method small businesses have used for years to even out cash flow from clients that take too long to pay invoices. In a traditional invoice factoring deal, the small business (aka “you”) basically sells the invoice to a third-party lender who takes the debt for an agreed-upon fee based upon both businesses’ creditworthiness. They then pay the invoice, often within 24 hours. You still perform or deliver the goods or service to the company you invoiced but instead of paying you, the receiving party pays the third-party lender.
Fundbox is different a few different ways. First, instead of filling out a bunch of forms and going in person to the lender to discuss the terms, creating a Fundbox account is free and is said to take just 20 seconds. Then, you connect Fundbox with your accounting software (it connects with Quickbooks, Freshbooks, Xero, Harvest, and Wave) and it uses a proprietary “risk engine” algorithm that scans the data and analyzes risk based on a number of factors including a companies’ credit history and even Yelp reviews in order to determine how likely the invoiced company will pay the bill; this involves no humans and they claim takes just 50 seconds to run.
Then, the Fundbox app will show you how much the advance costs in fees and you can accept it in just one click. But the other important way Fundbox is different from other invoice factoring lenders is they do not actually buy the invoice and you have to make weekly payments to Fundbox until it’s repaid.
Fundbox says there are many factors involved in determining the fees it charges and what you owe. These are broken down into principal (the actual amount borrowed), transaction fees (3rd party fees like ACH fees banks charge), and advance fees (aka interest, which is where they make their money). You are then required to pay back the money over 12 weekly payments.
Fundbox has an interactive calculator on their website so you can see how it works. For example, it shows a $3,000 invoice will cost you between $148-$208. However, Fundbox says if you pay back the money early, you’ll be charged less interest and the more you use Fundbox the less these fees will be.
Fundbox states there are no origination fees, subscription fees, or hidden fees to use their service.
Bottom Line: Is Fundbox a Scam?
Invoice factoring, sometimes called alternative lending, is a method a lot of small businesses are using to increase cash flow. Fundbox is attempting to streamline this process and so far seems to be getting rave reviews from businesses that have used it.
First, while the loan itself may have a relatively small interest rate, say 5% of the amount paid within 3 months, this translates into an annual rate (APR) of 20%. Some users of the product have said they’ve been able to structure their invoicing to charge clients extra to avoid these interest fees and/or encourage them to pay quicker.
Third, since this is not a traditional invoice factoring loan, you are still on the hook if the business doesn’t pay up like they should. And, finally, if there is any dispute between you and Fundbox, per their terms and conditions you will likely have to settle the issue via arbitration, not in a court of law. While this may speed up the process and be cheaper, some argue that forced arbitration prevents consumers from receiving fair justice to their claims.
We also suggest reading: BlueVine vs. Fundbox: Which is Right for Your Small Business (BlueVine is a similar funding company with slightly different terms). You may also want to speak with your accountant.
Let us know your experience with Fundbox below!