Small Business

FreshBooks: The only bills you'll ever love

Written by Rick Spence

Invoicing is the bane of many entrepreneurs. Tracking hours or projects, preparing a bill and following up are among the burdens of running a business. But Michael McDerment, the founder and CEO of Toronto-based 2ndSite Inc., has a solution: FreshBooks. McDerment likes to describe FreshBooks as "the unaccounting service" because it offers painless billing for people who have better things to do. And he's leveraging a mushrooming client roster to compile what promises to be a lucrative database on invoicing best practices. For a monthly fee, FreshBooks tracks your projects and payables, delivers bills by e-mail or snail mail, and even sends reminders to anyone who hasn't paid by a given date. Even better, the software/service resides on the Web, so you can access it from anywhere, and you can tell when clients have received your bill (most access it from the Web, too). That's not all. FreshBooks knows who's billing whom, how much and in which industry. It's starting to share that information (in aggregate) to help individual clients benchmark their processes, prices and performance against others in their sector. FreshBooks intends to take this a step further, by identifying which of its 125,000 clients are the most successful in their fields and getting them to share their best practices with the rest of the "community." "We're looking to redefine service," says McDerment. "I'm not an accountant, and that's the best thing I have going for me." It could help explain why FreshBooks is innovating a lot faster than your everyday bean-counter, gearing up to offer new services such as detailed time sheets and document-sharing. Where's the competition? McDerment says that FreshBooks is alone in a broad space among Intuit's QuickBooks, general accounting software and a horde of independents that don't offer FreshBook's live phone support or ongoing innovation. Membership, including users of a free service for billing up to three clients, is growing at better than 10% a month. Although most Web 2.0 firms have trouble getting people to pay for their products, FreshBooks has three paid tiers, from US$14 to US$39 per month. And it's about to launch two premium tiers at US$89 and US$149 for companies that have more clients or want access for more than three staff. The world is taking notice. FreshBooks was just featured in a Taiwan directory of the world's most innovative Internet applications. And California tech entrepreneur Zoli Erdos, program chair of the Silicon Valley Association of Startup Entrepreneurs, rated FreshBooks' announcement of its new benchmarking services as the biggest surprise of last fall's Office 2.0 Conference in San Francisco. "There's a potentially huge market opportunity here," wrote Erdos in his blog, Zoliblog.com — if FreshBooks can assure clients their individual data will remain sacrosanct. Until now, the only way firms could analyze competitive benchmarks was to pay thousands of dollars for industry surveys from consultancies such as Forrester Research. FreshBooks' database will allow it to share numbers such as how customers pay, how fast and average industry prices. Erdos says it has a head start in this: "Kudos to FreshBooks for being a pioneer in building the service." This isn't what McDerment expected to be doing when he started a Web design and marketing firm in 1999. To reduce his own firm's administrivia, he created a rough-hewn invoice-automation solution. Joe Sawada, a computer science professor who is now FreshBooks' chief technology officer, offered to "play with it," and concluded it could become a Web-based application other businesses could use. Within two years of launching the firm, the partners had 25,000 users and a stream of user feedback to propel product development. Today, while McDerment won't reveal financial details, he maintains that FreshBooks is cash-flow positive: "We are trying to drive growth, and we spend with that in mind." He says FreshBooks "is so easy to use, people actually use it," noting that many clients now send out invoices as soon as they've supplied their service (no more waiting till the end of the month). They also make more money, since those who invoice faster keep better track of hours worked. A survey shows FreshBooks' clients have slashed their invoicing time from eight hours a month to about three, and the time until they're paid from 22 days to 14. More impressive, 61% are collecting more money. With sales jumping and a low client churn rate, McDerment predicts FreshBooks could have up to a million customers by next year. "For every Web 2.0 startup, the competitive advantage is the relationship you have with your customers," he says. "Other companies are going to have a hard time doing what we do. When people start changing their behaviour, that's when you know you have something."

Originally appeared on PROFITguide.com

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