Early payment discounts can benefit both buyers and suppliers; suppliers get paid early to maintain cash flow, while buyers – obviously – get a discount on their purchases. But exactly how steep of a discount buyers and suppliers agree on depends on a plethora of factors, from how much cash a company has on hand, to what time of year it is. Combined with an uncertain global economy, this Supply Chain Finance process is made even more complex.
C2FO offers a streamlined way for suppliers and buyers to achieve discounts for early payments that meet the needs of both sides of the supply chain.
Here’s how it works: Buyers submit their invoices to C2FO. Suppliers submit their proposed discounts offered to the buyer by 10 a.m. and, after, buyers submit both the amount of funds they have available for that day and the minimum overall discount, or APR, they need on the funds offered.
C2FO then uses algorithms to calculate an exact APR for each supplier that has proposed an early payment discount; that APR, C2FO says, allows suppliers to reach the highest amount that qualifies for early payment – far higher, the company says, than competing platforms.
It’s this ability for C2FO to find a middle ground between buyers and suppliers on early payment discounts that makes the company so unique. To do so, C2FO achieves the buyer’s overall target discount of, for example, 5 percent, by combing the lending to one supplier who offers a 6-percent APR with another that offers a 4-percent APR.
“This in effect lets each business in the marketplace name their discrete price for cash and cash flow,” says C2FO Chief Product Officer Kevin Daniels, “thereby creating the most fair way to price cash and cash flow.
“There are times when businesses are flush with cash and times when they are not. Traditional funding solutions do not allow for discrete pricing and timing of cash and cash flow. C2FO does. This is why C2FO has such a high fill rate for cash and cash flow delivered to businesses across the world.”
According to the company, C2FO achieves an average 5.82-percent APR for buyers. On the other hand, the company has facilitated 60 million days of early payments across the globe – with an average acceleration of payments of 22 days. Plus, reports say, suppliers are encouraged to bid below what it would cost for them to borrow from a bank.
The success of C2FO could help solve a growing problem catching the attention of authorities around the world: late payments are placing major burdens on suppliers. For example, following complaints from suppliers for AB InBev, Heinz and Premier Foods, U.K. regulators launched a probe and found that small- and medium-sized businesses were owed nearly $60 billion in 2014.
It took some companies, the study found, up to four months to pay their small suppliers.
C2FO’s success in finding middle ground between suppliers and buyers is a step toward facilitating invoices paid on-time. And they’re not done yet. A report by Cash & Treasury Management File says C2FO currently runs 15 algorithms to test which works best for each client. The process allows the firm to collect a trove of data on supplier behavior, offering insight into when those suppliers offer their highest and lowest discounts.
The company – which already includes major buyers including Toys R Us, Walgreens, Costco and Toshiba – is now exploring ways to use that data to offer not just daily, but monthly or even yearly assessments to achieve a buyer’s overall target APR. The firm is also looking at ways to fund entire supply chains, reports say.