The national economy might be entering another slow-down phase, but a Madison-based start up will use an infusion of angel capital to help more businesses speed up, and take some of the hassle out of, the collections process.
TermSync has closed on a Series A investment round that generated $630,000 in angel capital, with funding from a group of private investors that includes TermSync board members Brian Wiegand of Jellyfish.com and Alice.com fame, and attorney Mark Burish, a shareholder in the law firm Hurley, Burish & Stanton.
Mark Wilson, CEO of TermSync, believes the company has largely proved its third-party, software-as-a service concept and has established a stable, scalable cloud platform. Now, he wants to add more clients and convince existing ones to use their service in higher volumes.
Wilson said the company has brought on Bryon Thompson as executive vice president to handle sales and marketing. While some of the new capital will be used to continue product development and build engineering resources, the company’s primary goal is to ramp up its sales staff and its marketing efforts.
Wilson is looking forward to more broadly sharing what he considers a long-overdue payment-terms process, one that begins with gaining acceptance by businesses and their customers. “It’s almost comical to me,” he stated, “that we still are collecting in the same way companies were 20, 30, and 40 years ago.”
Don’t call us collections
Wilson stressed that he does not run a collections company, but has developed an accounts receivable automation platform to speed collection times and reduce or eliminate bad debt. The TermSync platform monitors a company’s outstanding receivables, sends payment reminders, and automatically draws funds from the company’s customer via automated clearing house (ACH) if a payment has not been received by a previously agreed upon date. According to Wilson, customers retain complete control because they are allowed to delay or dispute a payment simply by entering a reason, and the vast majority of bills, 99%, are paid on or before the due date.
Payment terms and conditions are agreed to upfront as part of their existing credit application – or engagement letter process – rather than waiting until after a bill is past due. TermSync clients use a form to sign up their customers, which essentially becomes the second page of a credit application.
With his background as a CPA, controller, and CFO, Wilson was looking for a way to accomplish what TermSync now does. His previous stops include Grant Thornton, Jellyfish (since acquired by Microsoft), and Sonic Foundry, but it wasn’t until he got to Sonic Foundry that he saw need for a third-party service to help manage the collections process.
In addition to attracting investors like Wiegand and Burish, who serves on the Sonic Foundry board, Wilson also brought on software developers who worked at Jellyfish and later Microsoft in Madison. When Microsoft closed the local office, they had a chance to transfer to company headquarters in Redmond, Wash., but decided to cast their lot with TermSync.
What they have developed is something “like a PayPal for businesses, but it’s more complicated than PayPal,” Wilson explained. “I can’t use PayPal because there are payment terms and B-to-B transactions that are a little bit more complicated than what PayPal deals with.”
As Wilson explained, every client company has had a process where on certain days, an account statement was mailed out, which was followed up with a friendly call, and then it got progressively more aggressive until the matter is referred to collections. “It’s basically a series of steps or actions that the vendor has to perform when their customer breaks payment terms,” he noted. “What we wanted to do, instead of wait for those relationships to get to some kind of contentious state, was to put procedures in place at the beginning when you fill out a credit application and when you sign the engagement letter.”
What the parties sign is a form that spells out what happens in a “slow-pay” situation. The vendor basically concedes there are instances in which payment terms are broken, but expects the slow-paying customer, after receiving notification via email, to take 30 seconds and choose one of three options: to pay the invoice in a free, electronic transaction through TermSync, to delay the invoice, or to dispute the invoice. If they choose delay or dispute, a pop-up message appears and the customer has to enter a reason why. That reason is automatically forwarded to TermSync’s client, who is the vendor in the relationship, and that provides visibility without having to make a collection call.
“The way our software works is we become involved in that engagement letter process or that credit application process,” Wilson said. “We don’t change anyone’s payment terms, so if you have 30-day terms, or 60-day terms, we adhere to those terms, and we send out automatic reminders, either on the due date or some of our clients add a grace period of 10 days. So if you have 30-day terms, on day 40 the TermSync technology would send out a reminder saying, ‘Payment for invoice XYZ is 10 days past due, please choose from one of these three buttons in the email.’
“It’s a portal where they can also log in to review all the status of their invoices.”
A portal with a hook, that is. Wilson concedes that companies could send out automatic notifications on their own, but TermSync does not allow the recipients to ignore it like an account statement. If they don’t take 30 seconds and select one of those three buttons in five days or whatever time is prescribed, TermSync has an ACH authorization to draw the invoice amount from that paying company and remit it back to the vendor.
“Those rules are explicitly laid out when the company signs an engagement letter or credit application, and the immediate response people have when I say that is, ‘Well, why would the paying company, the customer of our clients, agree to that?’ One, we point out that we are a third party managing this authorization. I know as former controller and CFO, I’d never grant my vendor direct access to my accounts, and that is where TermSync, as a third party, points out that if you do need to delay, if you do dispute the invoice, you always retain control.”
Thus far, TermSync has handled more than 15,000 transactions, enough body of evidence to demonstrate that the vast majority of bills are paid on time. In addition to processing over 15,000 transactions, TermSync now manages over 2,000 payment-term relationships between its clients and their customers. The revenue model involves a monthly fee based on volume of usage, but TermSync will take the next step when more clients move beyond the trial phase and they use TermSync for only a handful of customers.
Recent client additions include Palmer Johnson Power Systems, DiscountOfficeItems.com, and the Oakbrook Corp.
“What I’ve tried to do over the last six months or so is prove that customers of our clients will sign the form,” Wilson said. “I’ve never had a problem convincing CFOs that this would be a great service for them, but the first questions is ‘will my customers go for it?’ We made the appropriate tweaks and made the process fairly simple, and we have proven, by managing over 2,000 relationships between our clients and their customers, that we have enough data and we have the process refined enough to show that customers will sign up for this service.
“I wanted to do that on my own as an accountant, talking their language, before we really ramped up our sales and marketing efforts.”
No patent application has been filed; the company is in the process of determining what, if any, software or processes should be patented.
Looking ahead to an exit strategy, company executives believe there are a variety of financially oriented companies that would be interested in acquiring a start up with this model.
Burish, who also serves as a director on the board of Sonic Foundry, acknowledged there are quite a few competitors in this space, but nobody with a product as efficient as TermSync’s. He believes that as more organizations engage in online financial transactions, TermSync will become a “natural business solution.”
“To me, it’s kind of a viral thing,” Burish stated. “Once it starts catching on, there is no choice but to use it.”
Wiegand envisions a number of exit suitors, especially financial services firms. “There are a tremendous amount of exit opportunities, which is always attractive for an investor,” he said. “The key for Mark (Wilson), though, is don’t focus on the exit. If he does his job and creates value, the exit will make itself very obvious.”
Sign up for the free IB Update – your weekly resource for local business news, analysis, voices, and the names you need to know. Click here.
