Late payments can have a significant impact on the cashflow of small to medium businesses and enterprises, and have a flow-on effect for business owners.
With study by PayPal and Intuit Australia in November 2015 found SMEs around the country were collectively owed $26 billion, the latest Business Monitor survey from MYOB found late payments were affecting the personal finances of 35 percent of business owners: 32 percent said late payments had impacted their ability to cover expenses such as rent and power, while 52 percent stated their stress and anxiety levels had been hit.
While a part of these late payments are due to other, often larger, businesses extending their payment terms, a portion of these are due to creditors customers not paying up and may need to be referred to a debt collection agency.
Looking to update the debt collection process is startup InDebted, founded by Josh Foreman.
Foreman saw through his work in a previous business the direct impact that bad debt has on small businesses in Australia. After exiting that business, he spent some time understanding the debt collection business and exploring a potential solution.
“I saw that the offerings for small business were lacking and typically these are the businesses that need the cash flow more than others,” he explained.
Foreman set about building an MVP with a simple vision.
“I knew that if I couldn’t get smaller customers to submit their debts to us online, we likely wouldn’t be able to gain the traction we needed to scale and thus reach other opportunities such as the platform offering,” he said.
“Since day one we have been building solutions to the problems we as a team are actually encountering with the collections. Everything from skip tracing – finding debtors who have moved or changed details – communications, payments through to disputes. When we encounter an issue or something that we think can be done better, we approach the problem from a fresh perspective and build technology to address the problem.”
The platform works by allowing a customer to log on and fill out a collection form, which asks for their business details, those of their debtor, and some key details about the debt, including the debt amount, invoice date, and what their communications with the debtor – if any – have been like.
“We focused on making this simple as we found that many of our peers requested too much information from potential customers as well as didn’t focus on the user experience,” Foreman said.
“Once a customer has submitted their first debt, they receive their login details to access our customer portal. From here they can submit additional debts, view the status of current accounts, as well as speak with our staff.”
On the InDebted side, once a debt has been submitted, the system begins performing searches, or skip tracing, to find additional information about the debtor, such as credit data, phone numbers, addresses, social media accounts, and contact details of other related parties.
Analysing this data to determine the best way to approach, an initial correspondence is established with the debtor informing them that the debt has been referred to InDebted for collection, and their stance on the matter noted.
InDebted offers debtors a range of payment options, and also provides payment arrangements for debtors who may be in financial hardship. The startup also has a dispute management process should there be a dispute, with a team member effectively acting as a mediator; InDebted can also manage filing, litigation, and enforcement if legal action is required.
The startup is also working on a ‘platform as a service’ model, currently in beta, aimed at organisations with their own in-house collection teams to help them better manage them.
The target market for InDebted’s core offering is the Australian and New Zealand small to medium enterprise market, along with alternative finance lenders; it has successfully collected debts as little as $16, and can collect up to $250,000.
There are a number of other companies working in a similar sort of space, from fellow startups taking a fresh approach to established, traditional debt collection agencies.
Raising $1.25 million in funding last year was Sydney startup ezyCollect, which helps businesses with their debt collection through an automated platform. Launched in early 2014, the startup was launched by Arjun Singh and Raj Kuckreja after they themselves dealt with customers who were slow to pay.
Integrated with MYOB, Xero, and other accounting systems, the platform works by connecting to the client’s accounting provider and having them set up a reminder plan that automatically chases customers who have overdue payments. It also allows businesses to thank customers who pay on time.
To help InDebted grow, the startup recently raised $1 million in a seed funding round led by Westpac-backed VC firm, Reinventure, with participation from others including Lachlan Heussler, managing director of Spotcap, and Invoice2go CEO, Greg Waldorf. The round was in the works for around four months, Foreman said, with the startup talking to a number of potential investors.
“Things clicked with Reinventure almost immediately. We were really looking for a VC that shared our vision for where the company is going, as well as one that could provide a lot of strategic assistance and all round support to InDebted. Reinventure definitely shines in this area,” he said.
“Every member of their team is very venture-focused and do everything they can to help. The strong opportunities with Westpac are also significant and we look forward to exploring them in the coming months.”
Kara Frederick, general partner at Reinventure, said, “Assisted by technology, InDebted transforms the otherwise frustrating and time consuming process of debt management. The multi-billion-dollar debt management industry today is highly fragmented, somewhat archaic, and still reliant on manual processes. From snail mail to phone calls, numerous niche providers use outdated models for debt collection.”
The startup is focused on expanding its team over the coming months, before looking to enter the UK and US markets due to their similarities to Australia.
Image: Lachlan Heussler, Josh Foreman, Kara Frederick. Source: Supplied.