Why C2FO needs Institutional Money to Solve Seller’s Request for Funds Across Network

Congrats on C2FO for building a network particularly in the retail, technology and CPG space where you can go to Fortune 100 and say 30% of your suppliers are using our network, join us and we can generate money for your surplus cash. It’s a great liquidity tool for treasurers, and a great opportunity for companies to name their price for money.

Just like Priceline, Suppliers can say what they are willing to pay up to x% for this money. Its an up to rate, and C2FO usually gets a discount to that rate as long as it meets Buyers stated return objectives. There is no bidding for invoices.  You just say you will pay up to this rate.

The Network effect enables C2FO to supply money across many buyers for one supplier, all with a single sign on.  So if a supplier is looking for $5M, and has buyers like Costco, Nordstroms, Walgreens, etc. they can pull cash. The Treasurer of Hanes can log in and sees all of their customers and invoices rolled up to the parent level for Costco, Nordstroms, and Walgreens.  Hane’s Treasurer could put a global offer saying willing to pay up to 2% for any early payment across any of my clients.  They can also filter by certain suppliers.

That’s how 95% of users use the C2FO system.

But herein lies the catch. What happens when the Treasurer of some $1bn company wants 1.9% money and that just doesn’t meet the return targets set by Walgreens or Costco.

Who will provide the money then?

Banks aren’t in the best position given their capital and compliance costs are much higher than non banks. But who are these non banks? I mean people throw that term out like a hedge fund is the same as a pension fund which is the same as an insurance company or Family office.  Nope, not a chance.  And C2FO has yet to crack this code.

If they could solve this problem, their idea of a network from the seller side, especially large companies selling to large companies, gets very interesting. It’s LiquidX on steroids.

This is an area where the capital advantages of certain non banks can meet the demand for money by C2FO sellers. It creates a potential short term fixed income asset that could be attractive to the right set of investors.  The last I heard the average acceleration was 26 days. Perhaps that is a big part of the challenge.  Its certainly not going to be hedge funds for a variety of reasons.

Imagine a Costco saying above 5% use my money, below 5% use someone else’s money. The non bank investor gets all the lower priced assets, but that suits their risk / return requirements fine.  In fact, if the seller is another large rated corporate, it’s almost like buying their commercial paper directly.

Certainly non bank money makes more sense than a company using their own cash.

The other issue C2FO has to address is I am not aware of any corporate treating payment terms optimization as an investment as a matter of both policy and practice. Investing corporate cash as an investment needs objectives and requires being measured against other investment objectives, including return and risk.  Right now there are fundamental changes occurring in the investment world that are affecting how companies invest surplus cash. Chief amongst those are the changes in money market fund rules.  The fundamental question companies must ask themselves is whether or not they can measure derisking the supplier relationship or whether they bother to under this scenario.  Treasurers have no idea, and Procurement may talk about this from a high level perspective, but it’s not measured.

All in all, new fintech options continues to make for a confusing landscape for many in the corporate world – both on the Treasury side and Procurement side.

Jason and I see lots of opportunities here, and the changing dynamics of how credit is formed, underwritten and injected into supply chains is becoming pretty impressive compared to traditional methods. If you like to reach out to us, you can contact me at dgustin(at)globalbanking.com

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