Suppliers often seek early payment from buyers in exchange for a discount on the goods or services provided. Often this discount if part of negotiated payment terms. For example, if payment is made in ten days instead of 30 or 60, the supplier will accept a small percentage less payment. These discounts are static, where a buyer offers two payment options: full payment at the end of the term of the invoice or a discounted amount on a fixed date.
How is an early payment platform different?
This discounting process is made dynamic with an early payment platform. This technology allows for a variable cost, the amount of discount for early payment depends on how many days prior to the original due date the payment will be received. The earlier the payment is received, the higher the cost of the discount. An early payment offer can be made at any time during the payment term period.
The C2FO early payment platform is a market model. Customers upload approved invoices. Suppliers request early payment of approved invoices at a rate that works for them. C2FO matches the offers to customers’ desired return. Payment is still made by customers directly, only faster. One of the biggest differences with this market model is that both the days paid early and the rate are variable. Suppliers can also choose if and when they need to accelerate payment on a given invoice without any additional fees, paperwork. Suppliers have more control and optionality with C2FO.
Are all early payment options the same?
Many programs offer an auction-based model. An auction model allows for few “winners” and many losers when it comes to accessing early payment. Further, the auction model has a limited window for making a bid on a set date. C2FO has a robust marketplace model that creates a win-win solution where suppliers can make an offer for discounts based on their needs. The C2FO market is available to suppliers 24 hours a day, every day of the work week. Suppliers can make offers when it makes sense to them and then our rolling global daily market closing capabilities more efficiently award the early payment.
When should a business take early payment?
Early payment discounts offer access to working capital from existing cash flow instead of borrowing. This option makes sense for a business if its cost of borrowing is higher than the discount offered for early payment.
There are many reasons a business may need early payment. For example, rapidly growing businesses that are funded with asset-backed lending may need access to more working capital than their collateral allows.
Other working capital demands can occur such as late payment by another customer, responding to seasonal demands, or funding new equipment or expanding operations. Sometimes businesses have shorter payment terms with their own suppliers than their terms with buyers. The ability to control payment date, and thus, cash flow helps businesses manage these demands without adding debt through borrowing.
Why are early payments attractive to buyers?
For buyers, the discount earned by early payment offers an opportunity to increase margins, earning a no-risk yield by using cash on their balance sheet or lower cost capital to fund quicker payment of invoices. In return, buyers support their supply chains with low cost access to working capital and control of cash flow. By supporting the needs of their suppliers, buyers reduce financial risk in their supply chain and ensure timely, reliable delivery of the goods and services they rely on.
How does early payment provide growth-friendly funding for India’s economy?
India’s GDP grew at a rate of 7.1 percent in 2017. It remains one of the fastest growing economies in the world and is on pace to overtake China in growth rate. Currently the need for liquidity by businesses is growing year-over-year, on track to outpace access to traditional funding.
As most small and midsize businesses in India rely on traditional sources of funding that are backed by collateral. Typically, the amount an business can borrow depends on the value of these collateral assets and the amount of credit extended to the company is directly linked to the ease and liquidation value of their assets in case the borrower is unable to repay the loan.
A rapidly growing business has funding needs that far exceed the value of the underlying securities. Accelerating payments provides an additional source of non-debt, “growth-friendly” working capital. With on demand payment acceleration from C2FO, businesses can control cash flow to meet increased demands, fund inventory, and expand operations.