When a consumer buys a pair of shoes in a store and pays via credit card, the merchant gets paid within 48 hours regardless of when or if the consumer pays his credit card bill. It costs the merchant 2.5%-4% on average and short of the occasional chargebacks, their revenue (cash) is in their account within 48 hours and the store has not taken on a liability or debt to do this. On the other hand, in B2B transactions, most suppliers have to extend net 30, 60 and sometimes net 90 terms to their clients. NOWaccount® allows suppliers to put B2B transactions with net terms up to 90 days on the payments system, after the transaction is closed and the invoice is agreed upon, in the same way as if the business client had paid via credit card. Not a loan or factoring, NOWaccount’s fees and the terms are similar to a credit card merchant service.
NOW Corp was co-founded 5 years ago by Lara O’Connor Hodgson, Stacey Abrams and John B. Hayes. Lara, its President and CEO, received an MBA from The Harvard Business School in 1998 and a Bachelor’s in Aerospace Engineering with highest honors from Georgia Tech. During 1998-2001, she held senior positions at iXL Inc. and Andersen Consulting. She founded her previous company, Nourish, a children’s products company in 2009, with partner Stacey, Senior Vice President of NOWaccount. Stacey also serves as the minority leader of the Georgia House of Representatives. Prior to Nourish and NOW Corp, Stacey served as a tax attorney with the law firm of Sutherland, Asbill, and Brennan. John B. Hayes, the Chairman of NOW Corp since inception, brings over 40 years of experience in developing technology-based companies, including Peachtree Accounting, several of which provided innovations that displaced existing industries. Atlanta, Georgia-based NOW Corp is a certified woman-owned business with a team of 20.
Beginning with a controlled pilot for the first 18 months, NOW Corp to date has processed more than $140 million in transactions through its flagship offering NOWaccount. The company has only raised a few million in equity through friends and family and private equity. Growth is funded through debt from a variety of financial institutions.
The pain point
Small & Medium Enterprises operating in the B2B and B2G segment often face cash flow problems. They normally sell their goods and services on invoices with 30 to 90-day maturities. The largest use of capital for an SME is usually its accounts receivable, and commercial and government customers often require an even longer credit period. NOWaccount is an immediate payment solution system equipped with risk management technology. NOWaccount is a payments solution provider that allows small businesses to get paid on their invoices immediately, without recourse, without putting debt on the books, and at a cheaper cost than factoring. NOWaccount also strengthens the balance sheet and business credit, making SMEs better candidates for additional sources of capital such as loans and lines of credit.
How it works
The transaction routed through NOWaccount is not a loan, not factoring, and not receivables discounting, but rather the true sale purchase of the asset, in which the NOWaccount client has signed a merchant service agreement and receives their actual revenue.
Unlike with factoring, the end purchasers are not aware or notified, nor do they need to make payments to NOWaccount. They continue to receive invoices from and make payments for the goods to their suppliers, the NOWaccount clients. The usage of NOWaccount is de-facto invisible to them. NOWaccount suppliers also do not have to pay a fee for all transactions – they pay only on accounts they choose to put on the system. So a customer ready to pay in 10 days does not need to be routed through the supplier’s NOWaccount, unless the supplier decides to put it through to receive the revenue faster and to receive credit protection. The NOWaccount user chooses at any time the clients they want to put on their NOWaccount or to remove from their NOWaccount, but once removed, a customer cannot be reentered for one year. If customers are late paying the invoice, they are not subject to late fees or interest, unlike with credit card payments. They simply continue to receive the invoice and pay according to their payment schedules. And very much like for credit cards and chargebacks, the NOWaccount client has to resolve the disputes with the customer, if any, regarding product or service satisfaction.
NOWaccount clients enjoy the freedom to move off-balance sheet any of their accounts receivables. Unlike factoring, NOWaccount does not require the supplier to book a liability; it is just a payment solution system – so the businesses can continue enjoying loans, cash credits, etc. from lenders.
A business unit aspiring to get registered with NOWaccount has to furnish through its online, 3 minutes application basically just its name, address, the state of registration, and year of establishment; there is a precondition that the business unit must be located in the US, although its customers may be based outside the US. No personal guarantees or financial information are solicited. NOWaccount approves the business unit based on its business credit score and once the business unit qualifies (usually 60-65% of businesses qualify), NOWaccount conveys approval decision within 48 hours. NOWaccount pays 90% of the amount on the invoice to the business unit within five business days of submission of invoices. The remaining 10% less the fee is paid on the 30th day after the term of the invoice, regardless of when or if the customer pays. The fee is 2.50% for invoice maturity of net 30 days, net 60 is 2.75% and net 90 is 3.00%. The fee is based on the terms offered and not on when the customer pays. There is an additional 1% surcharge for exports. Average outstanding receivables are 54 days for even 30 days credit. The enrolled business is provided a limit of up to $1 million funds in use, so as receivables are paid, those funds become available to purchase new invoices. In the case of unpaid invoices that reach 90 days past due, then NOWaccount suffers a loss.
NOWaccount is currently serving about 300 approved businesses but it is adding more clients daily, growing by triple digits year over year.
Effect on clients
Enrolled businesses realize and receive their revenue rapidly on outstanding invoices, with fewer charges that are equal to or even less than the costs involved in the acceptance of credit cards. NOWaccount clients, due to their improved cash management, typically grow 100% or more per year. It was calculated by the State of Georgia that in that state alone, the accelerated payments received through NOWaccount has helped businesses to add or retain more than 1500 jobs over the last couple of years.
Another reason why businesses grow is because they can confidently grow their volumes with immediate cash if they opt for NOWaccount, even if there is a default in payment by any customer. In addition, businesses save their time and efforts in following up on invoices.
Because of these positive effects on businesses, a substantial portion of NOW Corp’s current growth comes from the expansion of its existing customer base.
Source of capital
The company has a debt-led model and has created a structured finance vehicle for institutional capital. The financial institutions were able to put faith in the young company because of the immense domain expertise of the management team of NOWaccount and its patented risk management systems. More information was not available at this time.
Credit card companies operate primarily in the B2C segment, with limited acceptance in the B2B market. NOWaccount deals and specializes specifically in B2B and B2G. NOWaccount spent nearly 18 months in filing patents, registering trademarks, and product development before starting its operations.
NOWaccount’s management team has chosen a nuanced way of expanding. Its focus is on quality clients who are serving government and reputable commercial concerns, which have a very low probability of default.
The ability to take 100% of the risk away from the customer is surprising, and being invisible to the end customer highlights the sophistication of their technology and risk management systems.
The Fintech industry is strewn by me-too companies looking to differentiate just on the basis of lending algorithms, whereas NOWaccount seems to have given birth to an entirely new way of doing business. It has given the B2B segment an alternative to credit cards, and it is in the prime position to dominate an industry which it has single-handedly created.
Lending Times in partnership with NOWaccount is offering free setup and no minimum monthly fees for all new NOWaccount clients. If you are interested in signing up with NOWaccount please provide us your basic information.