Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How a Shared Invoice Pool Cut Payment Delays by Half
Transcript
- Lucas: So there's a story out of Phoenix that I have not been able to stop thinking about. Six independent electricians — sole proprietors, small crews, the kind of operation where if one job pays late, you might miss your own rent — they got together in January of this year and created what they're calling a 'shared invoice pool'. Luna: A shared invoice pool. So this isn't factoring, this isn't a line of credit from a bank — it's something they built themselves? Lucas: Exactly. Each electrician contributes their outstanding invoices into a common pool. The pool's total receivables — about $180,000 as of February — serve as collateral for a revolving credit line from a local credit union. Each electrician can draw up to 70 percent of their contributed invoices at any time. The credit union charges 1.2 percent per month on the drawn amount. Luna: So instead of each guy waiting 45 days for payment, they can pull cash the same week they finish a job. What's the catch? Trust has to be enormous. Lucas: That's exactly the barrier. They formed a simple LLC — each electrician is a member — and signed a pro-rata agreement. If one member's client defaults, the loss is split proportionally among all six. They also pay $250 a month each to cover administrative costs: the bookkeeper who reconciles the pool, the legal fees for the LLC, and the credit union's reporting requirements. Luna: So the math works if everyone's clients are roughly as reliable. But what if one electrician's clients are consistently slower payers? Doesn't that drag the whole pool's borrowing capacity down? Lucas: That's the key operational rule. The pool only accepts invoices from clients that have paid at least 90 percent of their invoices on time over the prior 12 months. They review the client list quarterly. If a client starts slipping, that electrician has to either drop them from the pool or increase their own capital contribution to offset the risk. So far, they've only had to drop one client — a property management company that started paying at 60 days instead of 30. Luna: That's pretty disciplined. And the result? By end of Q1, what was the average payment delay? Lucas: Dropped from 45 days to 22 days. And the cost — the 1.2 percent monthly on drawn amounts, plus the $250 admin fee — works out to roughly 3 percent of each invoice. Compare that to a merchant cash advance that might cost 15 to 30 percent, or even a credit card processing fee around 2.5 percent. It's cheaper and it doesn't force them to give up equity. Luna: I want to come back to the trust question, but first — this model reminds me of lending circles, the kind that immigrant communities have used for generations. A group pools money, takes turns borrowing. Difference here is the collateral is invoices, not cash. Lucas: That's a great comparison. The structure is essentially a rotating credit association, formalized with a credit union as the lender. What makes it novel is that the pool's borrowing capacity grows as the members grow. If one electrician lands a big commercial contract, they bring those invoices in, the pool's total receivables increase, and the credit line expands. It's self-scaling. Luna: But it's also fragile. What if two electricians have a dispute? Or one wants to leave? How do you unwind? Lucas: The operating agreement has a 60-day exit clause. When a member leaves, their share of any outstanding debt — if the pool has drawn more than the remaining members' invoices — must be settled. In practice, they'd probably have to reduce the credit line or bring in a new member. The credit union requires that the pool's total borrowing never exceeds 70 percent of total eligible invoices, so there's a buffer. Luna: You know, the reason I think this is worth talking about is that it's so specific to trades — electricians, plumbers, HVAC. These are businesses that don't have giant receivables portfolios, but they have predictable payment patterns from repeat clients. And they're often overlooked by traditional invoice factoring companies. Lucas: Right. Factoring firms usually want a minimum monthly volume — say $50,000 in invoices. A solo electrician might only bill $20,000 a month. Pooling six of them together gets you over that threshold. The credit union was willing to offer the line because the combined receivables were diversified across six different client bases. No single default would sink the pool. Luna: I want to ask about the credit union. Most credit unions don't do this kind of thing. How did they get them on board? Lucas: The electricians approached a small credit union called SunWest — about $200 million in assets. SunWest had a pilot program for 'community lending circles' aimed at small trades. The pool fit perfectly. The credit union sees the invoices as low-risk because they're from established clients — property managers, developers, homeowners with good credit. And SunWest gets to earn interest on the drawn amounts while fulfilling its community development mandate. Luna: So it's a win for everyone. But I wonder — is this replicable? Could a plumber in Ohio or a roofer in Texas just copy this model? Lucas: The legal structure is straightforward — form an LLC, draft a pro-rata agreement, find a willing lender. The hard part is the trust and the administrative discipline. These six electricians had worked together informally for years, referring jobs to each other. They already had a shared Google Sheet for referrals. The invoice pool was a natural extension. For a group that doesn't have that pre-existing trust, the transaction costs of setting it up might be too high. Luna: So the secret ingredient isn't the structure — it's the relationships. Lucas: Exactly. But I think there's a software opportunity here. A platform that handles the invoicing, the pro-rata calculations, the credit checks on clients, even the legal boilerplate — that could lower the trust barrier. Imagine an app where you invite three other contractors, link your QuickBooks, and the pool is ready in a week. No one has built that yet, at least not for small trades. Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, that's the only reason we can spend twenty minutes on a shared invoice pool in Phoenix. So if these conversations have moved your work forward in some small way, that link is meaningful. Luna: Alright, back to the pool. I want to understand the default math better. If one electrician's client doesn't pay a $5,000 invoice, what happens? Lucas: Under the pro-rata agreement, the loss is split equally among the six members — each absorbs about $833. But the pool also has a reserve fund — each member contributes 2 percent of every invoice they pool. That reserve is currently about $3,600, enough to cover a small default. If the reserve is exhausted, then the members cover the loss out of pocket. They've had one near-default — a client disputed a $3,200 invoice — but it was resolved after 90 days. The pool's reserve covered the drawn amount during that period. Luna: So the reserve acts like a self-insurance fund. That's smart. What about the interest cost? At 1.2 percent per month, if someone draws $10,000 for 30 days, they pay $120. Plus the $250 admin fee split six ways? Actually, $250 each per month. Lucas: Right, $250 per member per month. So the total monthly cost for a member who draws $10,000 for the whole month is $120 interest plus $250 admin = $370. That's 3.7 percent. But most draws are shorter — maybe 15 days — so the effective cost is lower. And compared to the cost of a late payment — late fees, stressed relationships, missed opportunities — it's a bargain. Luna: I'm struck by something. This entire arrangement exists because the traditional financial system doesn't serve one-person electricians well. A bank won't give them a $50,000 line of credit. Factoring is too expensive. So they build their own solution. That's both inspiring and a little depressing. Lucas: It is. But it also shows what's possible with a small group, a clear agreement, and a credit union that's willing to think differently. I've been tracking this pool since February, and they're now exploring whether to expand to other trades — a plumber and an HVAC contractor have asked to join. If they do, the pool could double in size by the end of the year. Luna: That would be a real test. More members, more diversity, but also more complexity. I hope they pull it off. Lucas: Me too. And if a software platform emerges to standardize this, we might look back at this Phoenix electrician pool as the prototype that proved the concept. Luna: I think that's a great note to end on. Thanks Lucas. Lucas: Thanks Luna. Talk next time.