Payplant offers cash starved App Developers an early pay solution

Payplant got their start when a few tech entrepreneurs (Ronjon Nag, Neerav Berry) sold their app development business to Blackberry. In the course of their software development days, Payplant noticed how difficult it was for app developers to stay in business, since the majority of their expenses are expensive contract labor (programmers) who can quickly walk off the job if not paid on time. The founders saw a need to accelerate payment for these vendors and now have been operating for over a year (yes, filling an unmet need).

Like any of these new ventures, you have to ask a few key questions:

  • Where does the balance sheet come from?
  • How do they control for various risks?
  • Is this scalable?
  • Is this a sustainable model?
  • How do they use technology? Data?

Payplant is really another form of a factoring solution focusing on a niche space. It has the same labor intensity that factoring does, ie, you must do serious verification on the seller of invoices. For example, the process to sign up as a Payplant seller involves at least nine documents to get started.  Examples include:

  1. Your latest Financials (Balance Sheet & Income Statement)
  2. YTD Financials
  3. Current A/R Aging
  4. Current A/P Aging
  5. Copy of contracts with Customers whose invoices you wish to sell.
  6. Copies of initial invoices
  7. Past 3 months bank statements
  8. Incorporation Documents
  9. EIN - This will be used to complete two IRS forms, which they will send for signature once they receive EIN and address

 

Payplant charges a due diligence fee of $300 (can be paid later after initial review). This covers their out of pocket background checks, lien filings and monitoring.

I also found the invoice verification process a bit clunky. For example, if you send email invoices to clients, they receive a copy and must verify. If you send invoices via Ariba or some other network, they do a screen share or you provide them a log on to verify.

Payplant controls risk by assigning the payment proceeds of your invoice over to them (or any other small vendor). You receive 80% of your funds upon approval and 20% once Payplant receives the funds from your buyer.

Advertised pricing is 1.2% on outstanding invoice value, but that is only if your buyer is of AAA quality. PayPlant uses a pricing risk matrix to charge based on buyer risk, so if they are funding invoices for small private buyers with little public data available, you may pay significantly higher than 1.2%. Right now, they only pay in USD and deal with suppliers in the USA.

While the technology industry with their high labor costs and slow paying customers can use the help, I find the model little more than a focused industry sector effort on the tech space or for Amazon or eBay merchants.

Capital for purchasing the invoices is provided by the associated PayPlant Alternatives Fund, which expects to lend $100 million in the next year. Payplant has also been approved by the State of Illinois as part of the States program to help vendors get paid as the State still has an estimated $4 billion to $6 billion in past-due invoices.

Still, it’s another alternative liquidity option for many small companies that don’t have many options.

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