- Eleanor Hill
- Editorial Consultant, Treasury Management International (TMI)
- Sandy Kemper
- Founder , C2FO
Perched on the edge of a conference table, wearing anything but a suit, Sandy Kemper, founder of C2FO, is unlike any C-suite executive I’ve interviewed before. But then again, you have to be an ‘out of the box’ thinker to create the world’s first working capital marketplace. Here, Kemper shares his vision for the future of the company – and explains how corporates can leverage technology to turn receivables into cash flow and payables into income.
Eleanor Hill (EH): You’ve just returned from a C2FO company retreat where you tackled the topic of nationalism. How does this relate back to working capital?
Sandy Kemper (SK): One of our main aims at C2FO is to build global connections between companies and nations. Today, we serve customers in 175 markets and 60-plus currencies worldwide. Anything that is an impediment to that – such as the rise of nationalism and the spread of anti-globalism – we consider to be a systemic and endemic threat to the world’s continued prosperity and peace.
So, to set the scene for thought-provoking discussions on this topic, we held our retreat at the National World War I (WWI) Museum in Kansas City, Missouri. This provided the perfect backdrop because nationalism rose swiftly post-WWI, ultimately leading to fascism and WWII.
We brought in experts to help us understand why nationalism is occurring now and what this means for the global working capital ecosystem.
EH: What can the private sector really do to help stop the rise of nationalism, though?
SK: While C2FO cannot solve this issue alone, the more connections we build, and the more trade we foster, the more united businesses will be – which is especially important as issues such as climate change require coordinated global action to address.
What’s more, the majority of businesses today have a global supply chain of sorts – whether it be sourcing parts from China or selling goods in India, for example. As such, business leaders, CPOs, CFOs and corporate treasurers cannot bury their heads in the sand when it comes to nationalism as there will be an inevitable impact on international trade. Making corporate voices heard on the subject is more important than ever.
C2FO in a nutshell
The world’s first working capital marketplace, C2FO seeks to address the limitations of traditional financial institutions in an opaque market where the underwriting of credit is inefficient and costly.
Vendors can use C2FO to offer their customers a discount in exchange for early payment. Customers upload the vendor’s invoices into C2FO. The vendor chooses which invoices to discount and offers a discount rate. If the customer accepts, payment is released. It’s as simple as that – with no banks, factors, debts or commitments involved.
Corporate buyers can generate higher returns on cash or arbitrage their lower cost of capital without adding risk by paying approved supplier invoices early at discounted rates. As such, C2FO helps treasurers to increase yield on cash and short-term investments by providing a profitable alternative to low or negative interest on deposits. Given the global scope of C2FO and the multiple currencies handled by the platform, treasurers can put trapped cash to work in any region.
EH: How can C2FO’s offering assist corporates to succeed in this challenging economic and geopolitical environment?
SK: C2FO is designed to offer working capital efficiencies in any operating environment. Nevertheless, the greatest gains can often be garnered during challenging times, thanks to the riskless provisioning of working capital between suppliers and buyers. Suppliers can take control of their cash flow and buyers can increase EBITDA and gross margin and earn a better return on short-term cash, which improves the financial health of their supply chains.
This is a modern alternative to using a bank or an asset-based lender. Funding a supplier by buying their accounts receivable requires underwriting; when the buyer pays early, however, there is no credit risk.
By our calculations, there is circa $43tr. of accounts receivable on the books of businesses around the world, and $3tr. in finance chasing that. This presents a significant opportunity to liberate that trapped cash. Once freed, cash can be pumped back into the business and the global economy, thereby driving innovation and growth, and creating jobs in the process. Working capital is water for commerce; if you don’t have it, you can’t grow.
EH: On the topic of growth, C2FO has been expanding rapidly. You’ve recently acquired Priority Vendor in India, for example. What’s the strategy there and why are local solutions so important?
SK: The background to the Priority Vendor acquisition is that C2FO uses open source technology – and the ethos of that is ‘if you take, you give back.’ So, we contributed some of our code for running an online marketplace to GitHub, an open source development community, in the hope that others might build their own marketplaces to interoperate with us.
This is precisely what Priority Vendor did in India – and it made total sense for us to welcome them into the C2FO family, thereby increasing our global and local reach. While our aim is always to provide a standardised solution worldwide, there are nuances in individual markets which must be accounted for, so having in-country expertise and knowledge, as well as salespeople, creates a more robust offering for our corporate customers.
EH: Are you seeing any shifts in the types of customers using C2FO? And if so, what is driving that change, do you think?
SK: As well as the existing customer base, we are signing up corporates in new geographies and new industry verticals. As we expand into the Middle East, for example, we have begun working with a number of oil and gas companies – which is a relatively new sector for C2FO. The transportation sector is also growing its use of our solution and we hope to move into the healthcare sector in the near future. Interestingly, banks are also starting to use C2FO for their own internal spend.
Elsewhere, as the network effect of C2FO grows, we have been able to scale the offering to enable smaller-sized corporate buyers to take advantage of the solution. In short, there is a lot of growth happening in all directions!
EH: Why are more corporations choosing C2FO – is it just for profitability reasons, or are accountability and transparency also front of mind?
SK: The profitability driver is compelling. On average, treasurers using our solution have seen a yield of 7.6% – which is hard to match in this zero and negative interest rate environment. Mitigating credit risk is another significant driver. We have large customers who use C2FO to accelerate receivables and thereby increase credit limits. In turn, this grows the volume and velocity of business. Companies who cannot access credit insurance are also using C2FO to maintain stable supply chains.
Furthermore, in this age of accountability, C2FO provides transparency over a traditionally opaque market – and places the power of choice back with trading partners, not financial institutions. By enabling vendors to name their own discount rate, we are bringing buyers and suppliers together on an open and even footing, with the aim of making both organisations more successful and reducing their costs.
EH: We’re also hearing a lot about sustainability – where does this theme fit in the C2FO picture?
SK: There are many different forms of sustainability, and one of the most important is financial sustainability. As a business, this means securing your supply chain for the future by making it as cost-effective as possible, while supporting supply chain partners to grow. This is precisely C2FO’s raison d’être.
Another critical aspect of financial sustainability is investing cash responsibly and profitably – including where goods and services are sourced. Given C2FO’s reach across global supply chains, we can assist companies in choosing optimal supply chain relationships, and ensuring those remain transparent, accountable, successful, and sustainable.
We are also having conversations with buyers who would like to build sustainability scorecards into their supply chains, to help tackle issues of responsible sourcing and modern slavery, for example. What’s particularly interesting is that these kinds of discussions have moved on from mandating compliance with sustainability criteria through audits, to providing benefits, such as cheaper liquidity, which incentivise – rather than dictate – ethical and sustainable behaviour. This is a developing area and one we will watch closely to determine whether and where C2FO can potentially add value.
EH: What other new developments are you working on at the moment?
SK: Traditionally, we have focused on helping corporates to turn receivables into cash flow. But not all corporates need more cash – some are sitting on too much cash. We are therefore looking at ways to turn payables into income by creating a marketplace that allows customers to pay suppliers more slowly, for a revenue benefit on the supplier’s side.
We have conducted a pilot with a large European chemicals company and will bring this solution to market in the near future. We’re excited about this for many reasons, not least the spotlight on supply chain finance programmes and the negative focus on companies using SCF to extend their payment terms. One of the challenges with SCF is that the terms are set in stone. C2FO is completely flexible and the slower payment agreement can be stopped or amended at any point in time, which is particularly attractive during uncertain economic times.
EH: Finally, what do you have planned for the near future? Where next for C2FO?
SK: Of course, we will continue to look for innovation opportunities, but the focus will be on growing the solution across geographies and sectors. We will also be adding greater optionality around funding sources, for example, meaning that either the buyer’s cash or third-party cash can be used – at an invoice-by-invoice level.
Ultimately, the goal is to deliver more flexible and more agile working capital solutions, to the benefit of all parties. We therefore look forward to partnering with more corporate treasurers in 2020, helping them to unlock working capital efficiencies, increase transparency, and shore up their global supply chains.
