Market Perspective

Supporting SMEs by Keeping Early Payment Markets Open

June 22, 2020
Srishti Chhabra

C2FO’s mission is more important than ever to facilitate low-cost, easy access to working capital, especially to small and medium-sized businesses.

Optimism and hope are important for mental wellbeing. However, facing brutal facts – even though less uplifting – can be equally powerful.

I recently found myself relieved to read of the “Stockdale Paradox,” named after Admiral James Bond Stockdale, a United States naval officer held captive for seven years during the Vietnam War.

Admiral Stockdale never had much reason to believe he would survive the prison camp and someday return home to see his wife again, yet his faith never wavered. 

Contrary to the current support for optimism driving resilience, Stockdale reveals he survived seven years as a prisoner of war by facing two diametrically opposed sentiments: face the brutal facts of his situation head-on while keeping faith that he would prevail. 

He said those that were optimistic in the camp declared, “We’d be out of here by Christmas.” However, he noted that many optimistic prison mates failed to make it out of the camp alive and that many, he thought, died of heartbreak.

Here lies the paradox: the optimists in the prison camp failed to confront the reality of the situation. As I mull the current economic climate, Stockdale’s Paradox resonates powerfully with me. 

Taking a leaf from Stockdale’s book, I don’t believe we will be out of here — this financial uncertainty — by Christmas, either. 

Across the globe, a second wave of COVID-19 infections is a rising threat and most sectors are rebuilding their customer journeys/business models. Recessions in the U.K. and other European countries seem imminent — we must face this brutal fact. 

Financial health of economies relies on SMEs

Small and medium-sized enterprises (SMEs) represent about 90% of businesses and more than 50% of employment worldwide, while forming important parts of supply chains. 

On the C2FO platform, most of the suppliers are SMEs and are bearing the brunt of the recent financial upheaval. Many of our clients have kept their early payment markets open and in other cases, C2FO has collaborated with clients to accelerate funding to these suppliers via trusted third parties. 

Since 2010, C2FO has helped our clients deliver over $100 billion of liquidity to businesses of all sizes across EMEA, the United States, India and China. Through C2FO early payment, suppliers can accelerate payments for approved invoices — an efficient and measurable way to quickly increase a company’s open cash position.

We are innovating at a very fast pace and many days, the strength of our bonds with our customers carry us. Collaborating to create value and keeping faith has helped us deliver $2 billion of funding to SMEs during the crises. Some examples of this include:

  1. During the crises, our clients found that amounts that are immaterial for large companies can make a large difference to their supply chains that are made up of smaller companies. For example, when stores were closed and sales were low, Travis Perkins, the U.K.’s largest distributor of building materials, kept its early payment market open for SMEs. Whilst these early cash payments represented only a modest impact on the company’s balance sheet, ultimately it has helped many suppliers survive the cash crunch at the onset of the outbreak.
  2. Companies created special rate markets for supply chains supporting the COVID-19 response. For example, A global healthcare leader and customer of C2FO used C2FO to set up an early payment marketplace for producers of medical equipment so they could be paid earlier and at preferential rates to meet the increase in demand for medical equipment. Our supplier relationship management team has built strong relations with these suppliers to ensure that their concerns and needs are heard.
  3. Companies paid SME suppliers early for free on-demand. Payment terms mean different things to different demographics of suppliers. Giving suppliers the choice to receive early payment for free is empowering to cash managers at the suppliers. For example, we helped a European retailer create special markets for suppliers that were paid for free, on-demand. 
  4. Companies helped us communicate to small suppliers more effectively. In a world full of noisy emails and other mediums of communication, getting a simple logistics-free communication out is as tough as it gets. During the crises, Siemens Plc helped us innovate and find a seamless way to give its suppliers an early payment option via a one-click experience.

Together, we can innovate and deliver deeper solutions

With a network that matches payables and receivables for more than one million companies, C2FO is the world’s leading market for working capital solutions. Our platform’s unique technology and full suite of alternative finance products can provide you and your trading partners greater flexibility and control over working capital.

Where clients are concerned about using their own cash, C2FO has plugged in a funding network partner to finance our clients’ early payment markets for their supply chains.

 Traditionally, banks have found it difficult to assess supplier credit risk, while SMEs have found the logistical cost of such applications expensive. Whilst I am aware of the over-promise of technology solutions, we are hard at work to make sure we can provide a seamless, accessible, easy-to-use solution for access to capital, to all suppliers regardless of credit risk.

We are in a unique situation. Suppliers control how and when they participate, and there’s no interest expense or debt creation. Even if rates on a line of credit are competitive, borrowing cash is often more expensive because of additional fees.

 As the government and other agencies map out a response, C2FO is working directly with large enterprises to collaborate on solutions; whether that’s through designating cash specifically for small businesses or creating markets with preferential pricing, you can help small and mid-sized businesses affected by COVID-19 and build more liquidity where it’s needed most. 

Every day, my team and I work with talented clients from a variety of industry backgrounds as they strive to balance their desire to empower suppliers with working capital while still maintaining a healthy balance sheet.

To those individuals, this is my unoriginal and modest message: We won’t be out of here by Christmas. Let’s work together to come out the other end. Let’s open doors of communication and collaboration. At C2FO, we have faith that we will come out the other end stronger together.

Working Capital. Working for Everyone.

C2FO provides working capital solutions for you, your suppliers and your customers.

Related Reading