During times of financial hardship, the ability for companies to remain flexible, adaptable and agile is paramount. Having ready access to the necessary liquidity in these situations is essential. Unfortunately, since the outbreak of the coronavirus pandemic in March, many firms have found the channels through which they access additional working capital closed off to them.
“COVID-19 was a huge shock to the market system. The initial reaction was to hunker down, stop investment, and minimise risk,” explains Saket Sarda, Head Enterprise Sales for APAC at C2FO.
“At the same time, the banks issued a blanket credit freeze, large scale enterprises, all the way down to small-scale operators. Nobody could get access to any working capital.”
Even though that freeze has begun to thaw, its benefits have disproportionately served larger, more stable firms, leaving smaller and mid-sized companies out in the cold. Not only is this state of affairs potentially devastating for smaller firms cut off from sources of liquidity, Sarda continues, but the impact has the potential to ripple outwards through their supply chains.
“Your supply chain is only as strong as its weakest link. If the small supplier that makes up the farthest end of your supply chain can’t get access to the necessary liquidity to make the screws, machine parts, whatever it is you need, your entire production suffers and creates a ripple effect on the other suppliers in the supply chain,” he says.
“On our platform, we have close to a million of these critical suppliers. When their lifelines were taken away from them, the only option for Liquidity remaining for them was C2FO. We worked with the banks and the corporates to get liquidity to the buyer, so that it can then make its way to the supplier to, in turn, support the operations of those large corporates.”
Based in the US, C2FO is one of the larger fintech firms working to revolutionise the ways in which buyers and suppliers of every size in every industry can access the working capital necessary to survive challenging times and thrive in the years to come.
“The most disruptive innovations are typically the most simple,” says Iain Rolfe, managing director of C2FO’s operations in Australia and New Zealand. “That’s what we’re doing – challenging this really fundamental notion of the power dynamic between buyer and supplier, and disintermediating third parties that have become part of those interactions over time.”
We sat down with Sarda and Rolfe to discuss C2FO’s ongoing expansion into APAC, following more than a decade of growth in the US and a successful expansion into Europe.
The world’s first working capital marketplace
C2FO was founded in 2008, in direct response to the global financial crisis, a catastrophe which cost the US alone an estimated $22trn. The response to the crisis, Rolfe explains, was similar in a lot of ways to the market’s response to COVID-19.
“Liquidity dried up and smaller suppliers were unable to access working capital through normal banking relationships, as well as through the invoices that were outstanding from their customers,” he says. C2FO, Rolfe continues, was established in response to the need to get liquidity flowing out of the banking system, as well as from buyer to supplier.
Even when the world isn’t languishing in the grip of a pandemic or financial crisis, Rolfe explains that there is a fundamental issue with the way that suppliers are often forced to acquire their working capital.
“Lack of liquidity is a situation that our customers and suppliers face every day. At a fundamental level, whether you’re a large or small organisation, a supplier, a buyer or both, you need to have access to working capital,” he explains.
What this means is that firms are constantly trying to thread the needle between income and outgoings, whilst also having enough liquidity to support expansions, mergers, new ventures, or to respond to something unexpected – like a pandemic, for example.
“When a crisis emerges, you either go out of business or find more working capital to get through that period of time,” Rolfe explains. Historically, the typical response has been to get a loan from a third-party financial institution.
“Going to a bank is going to be a much more painful and lengthy process to free-up liquid capital that they may need urgently,” he says, adding that the cheapest form of financing is money that the company is already owed.
This is the core solution that C2FO is built on. Companies can use the C2FO working capital market platform to access funds that are owed and invoiced ahead of their due date, in exchange for a fee, and at a price that they themselves determine. “It’s an equalised system of suppliers and customers which cultivates collaboration,” says Sarda. “We bring price discovery, profitability, and cash flow into our customers’ supply chains.”
C2FO onboards approximately 50mn invoices to its platform every day. “It’s a mammoth technological challenge,” Rolfe notes.
In order to support this kind of volume, he explains that the company has built a “SaaS platform that runs on the underlying compute, security and storage capabilities of a big cloud services organisation. We then run a very sophisticated set of algorithms on top of that stack that allow us to ingest and process that volume of invoices every day at scale.”
For the sake of both security and simplicity, C2FO’s platform avoids keeping a continuous interface between the platform and its clients. Instead, they use point-in-time onboarding each day. “We can pull the necessary invoices from our customers’ ERPs into our system, do what we need to do, and then push the equivalent instructions back into their systems,” Rolfe adds.
The platform, Sarda explains, straddles the customer’s procurement and sales functions. “It means that you have a uniquely better view of your cash flow,” he says.
A Helping Hand
The COVID-19 crisis has been economically devastating for companies of all sizes and backgrounds, but particularly for minority-owned businesses. Research done by the University of California, Santa Cruz, found that approximately 440,000 black-owned businesses in the United States (over 41%) were forced to close in response to COVID-19. In contrast, only 17% of white-owned businesses experienced the same setbacks.
C2FO’s Equity and Inclusion Program is aiming to help change this state of affairs by providing diverse supplier certification, reduced rates and access to a broadening funding ecosystem. “We’re trying to help those minority segments get easier access to capital through special offers. It’s good for everyone and it addresses the impediments and biases that exist for those minority groups through no fault of their own,” says Rolfe. “That concept of economic justice and of equity inclusion is very strong in C2FO’s culture.”
Entering APAC
C2FO’s presence in the APAC market is relatively new, launching its operations in China and Australia two years ago, expanding its presence in India and adding Taiwan to its portfolio in 2019. Sarda’s role in the company’s expansion has several elements, each aimed at increasing C2FO’s APAC foothold, and developing the uniquely APAC-centric value proposition it can present to its new customer base.
“The first part of my role is business development, which is different from direct sales,” Sarda explains. Whether they’re with large corporates, banks or governments, the partnerships that Sarda is building are intended to fuel the local economic engine with C2FO, making the platform a more relevant proposition to companies in a given market. Second, the direct sale of services to new clients, both in the four countries where C2FO is operating, and beyond, initially in markets like Thailand, Malaysia, Indonesia, Singapore and later expanding into the Philippines, South Korea, Japan. Lastly, he is working to ensure the broader relevance of C2FO’s offerings to the APAC market, and driving the innovation that supports those goals. In contrast to the US and Europe – which are fairly homogeneous markets – APAC is a very different beast with an eclectic collection of varied rules, taxes and practices.
“In the West, the very nature of the Fortune 500 belies how many large-scale corporations there are in that market. APAC has a smaller percentage of large corporations by comparison. In APAC, and more importantly in ASEAN, a few high-level corporations control large segments of the economy - equivalent to that which 500 companies control in the US,” Sarda explains. Therefore, if C2FO wishes to achieve the same market penetration it has in Europe and the US, it needs to find ways to appeal to the huge numbers of mid-market, mid-sized firms.
“We’re looking at a comprehensive offering which straddles payables and receivables, creating an invoice central for a corporate, and also by connecting to their ecosystem of suppliers and customers to be more like an invoicing intermediary between firms,” he says, adding that another advantage that C2FO hopes to leverage in APAC is its data.
“Our existing presence in a lot of APAC countries, across numerous industries means we have a lot of data on trade,” Sarda explains. The 50mn invoices that are added to C2FO’s platform every day help generate deep insights into the wider market. “We can use all this data to give value back to our clients,” says Sarda. “For a mid-sized company that might not have too much data of its own, we’re able to provide a far more nuanced view of their own supply chain that they might not have had so far.”
C2FO Australia
Rolfe has been leading C2FO’s expansion into the ANZ market since May 2019. Almost more than anywhere, he says, the ANZ market needs new ways for companies to access working capital.
“Australia has gone through a period of many challenges. There’s been the financial crisis, there was a government intervention setting out the terms of engagement between big and small suppliers, and then we hit bushfires followed by COVID-19. People here are just punch drunk,” he reflects.
In order to recover, Rolfe continues, the ANZ market needs to find new ways to collaborate using technology. C2FO’s role will be to work as a national working capital control centre through its platform that provides companies with multiple different avenues to generate value.
“We’re going to help companies look at an invoice and think about the best way for the capital locked in that invoice to benefit the entire supply chain,” Rolfe continues. “Australia has a very special market with its own financial culture and system. What we’re doing here is taking the best of what C2FO does around the world and customising it for Australian customers. We want to be able to look back in a couple of years and be proud of our role in this collaborative recovery for the ANZ market.”
The Chief Finance and Insights Officer
The nature of executive roles is forever changing, as digital transformation reshapes the capabilities and demands placed on companies’ leaders. Sarda reflects that the traditional role of a Chief Finance Officer (CFO) may look very different in just a few years.
“Historically, a CFO uses past data to explain why things have happened and provide analysis. Going forward, I think that the CFO role will become far more about providing insights for future decision making,” he says, adding that the role will become about developing insights into how one course of action will interact with other elements of the business, and ultimately figuring out how to make the company more nimble.
“If the world keeps undergoing the kinds of crisis that we’ve been seeing, the companies that end up being successful are going to be the ones that manage to have more variable practices,” he adds. “Passive knowledge of things like accounting is going to evolve towards strategy, ecosystems and therefore outsourcing and the need for platforms like C2FO that can help provide good data in those areas.”
COVID-19 and Beyond
The past year has been a challenging one for companies worldwide. As liquidity has dried up, and larger corporations and banks adopt more conservative stances, C2FO has become a driving force in preserving resilience and agility in the markets it serves.
“Since COVID-19 hit, many large organisations drew down large amounts of capital through their credit lines, got lots of money in the door, and began tightening up on their expenses. It’s the same reaction that they had to the financial crisis in 2008,” says Rolfe. “What’s different this time around is that our customers have had the ability to treat the crisis in a more nuanced, technology-driven way.”
Through its market-based approach to freeing up liquidity, as well as initiatives like the Equity and Inclusion Program, C2FO is working to help the world survive and even thrive in these challenging times. Rolfe reflects that the past year has been one of, at times, frantic activity for himself and his team.
“In many ways, we’re a counter-cyclical business. When the chips are down for the economy as a whole, that’s when more people come to use our platform and our services, so we’ve had our hands full this year,” he says. “We’ve had a huge uptick, not just in our customer base, but also in our range of products on the market. We’re iterating and releasing new products almost bi-weekly because of how fast the landscape is moving.”
In ANZ, as well as the rest of APAC, C2FO has pivoted its operations in response to the crisis. “There was a dilemma whether we should continue to try and expand into new markets, given that we can’t travel, recruit and train new people,” explains Sarda. “This year, we decided to double-down on the investments we’ve made in the countries where we’re already active.”
Going forward, Sarda intends to continue focusing on the three main areas of his remit: developing relationships with key partners, expanding into new markets like Singapore, Thailand and Malaysia, and continuing to develop new products and services that are uniquely tailored to help APAC companies get the most out of every part of their balance sheet.
Looking to the future, Sarda is optimistic about the potential for progress, even in uncertain times such as these. “I think that what C2FO did in the US and Europe in a matter of five to six years will be accomplished much more quickly in APAC.”
