Optimizing working capital has been discussed a lot recently in the AP and P2P space and has often been promoted or marketed as a benefit to automating the invoice and payment process. Yes, there is truth to that but the execution of it comes down to the capabilities provided by the solution, and the availability (buyer) and need for cash (supplier). The financial crisis and overall economic downturn that began in 2008 have resulted in a liquidity imbalance where Fortune 500 companies have record cash surpluses while many small-to-medium-sized businesses are credit challenged. Since then, lenders have established tougher requirements for new clients and have kept a closer watch on current clients’ balance sheets.
Over the last few years, this situation has forced many enterprises to reevaluate the importance of working capital and to find ways to optimize it. Enter the C2FO Market for working capital.
A couple of weeks ago I had a chance to learn more about C2FO, an online market that allows companies to optimize their working capital in a live bid/ask environment. This market provides an efficient solution for suppliers to improve cash flow by accelerating payment of their invoices while giving buyers the ability to reduce their cost of goods and increase their overall gross and net profit. This is a more innovative approach than more traditional third-party funding options. C2FO was founded in 2008 by Alexander Kemper, former CEO of Kansas City based-bank, UMB, and Perfect Commerce.
Markets Create Efficiencies and Opportunities
The problem that C2FO overcomes is one of timing. Let me explain; in the AP world, optimizing working capital for a buyer means taking a discount for paying early and for a supplier it means receiving payment earlier. The challenge is that when a buyer has cash reserves and wants to pay an invoice early, a supplier may not be willing to take a 2% cut because they don’t have a need for cash and vice versa. The perfect scenario is when a supplier is in need of cash and when a buyer has excess cash – which is why a market scenario makes complete sense.
With C2FO, it all begins when buying organizations have excess cash, on which they want a certain return. That return will be in the form of early payment pricing from their suppliers. The C2FO Market helps buyers to optimize the early payments in order to achieve the desired APR.
To initiate a transaction, the selected suppliers receive invitations to participate in the C2FO Market on behalf of their buyers. Once suppliers register, they will automatically see their outstanding approved invoices and can place an early payment offer on the receivables that they have coming due from each of their buyers.
Buying organizations, which have a certain amount of excess cash or access to low-cost funding, configure their C2FO Market approval ranges and thresholds for what offers they can accept (keeping in mind the ultimate return they are looking for). After suppliers submit their offers, C2FO sends the buying organization and supplier organization an award file that reflects the new early payment date which is processed in the next payment cycle.
C2FO aims to create an efficient and secure market that determines the value for early payment based on the supply and demand for cash in addition to market intelligence derived from the C2FO proprietary database and algorithms. C2FO helps the buyer generate the return they want while simultaneously clearing the supplier offers at a rate that is a win for them as well.
Where this model really adds tremendous value is when suppliers get access to cash more quickly, they can create their own C2FO Market to offer early payment opportunity to their suppliers. All in all, the C2FO Market is an innovative solution that adds value to both buyers and suppliers and in the end creates more working capital efficiency for the supply chain.
