C2FO offers an alternative way of doing invoice financing. What concerns you about traditional discount models?Paying suppliers early in return for a discount is a concept that has of course been prevalent for some time. Initially this was done manually and procurement was tasked with negotiating individually with suppliers. In recent years more digital tools have been available, like dynamic discounting, whereby a sliding scale is used to calculate the invoice discount based on the payment due date. Generally, the challenge with these models is that it is the corporate who dictates the amount of discount that the supplier should offer. Our experience shows that, ultimately, this is bad for the supplier, which is in turn bad for the buyer, due to the limited adoption of such programmes.
How does your model compete or conflict with the Supply Chain Finance (SCF) programmes offered by banks?Actually, the two schemes are very complementary in that the SCF schemes tend to be focused on the very large suppliers, while C2FO (although still applicable to large suppliers) tends to be very well suited and easy to roll out to smaller suppliers. Any corporate which has cash, wants to increase profit and support their supply chain should be looking at this alongside an SCF programme.
If innovative finance can help solve the liquidity challenges that businesses face, and provide a far more visible working capital experience for them, do you see the role of banks being pared back? And over what time frame?As we all know, banks are under increased regulatory pressure, making it difficult to provide liquidity to some sectors, particularly the smaller companies with lower credit ratings. Innovative finance is filling this gap. Inevitably there will be some overlap with the banks, but they provide a valuable service which is unlikely to be pared back, certainly in the short to medium term. To put this in perspective, we estimate that, around the globe, there are circa $40 trillion of invoices due for payment at any point in time, with roughly $2-3 trillion of invoice finance schemes available from financial institutions, leaving $37-38 trillion without finance. That’s a very big gap for us to fill.
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