As far as corporate executives are concerned, capital allocation vital to company survival. Worldwide, business transactions total about $250 to $260 trillion dollars per year, but at any point in time, about $42 to $43 trillion dollars in receivables and payables are outstanding.
Many buyer companies have long payment terms or tend to delay payments, which means that when suppliers are in urgent need of money, they are often unable to get payment from their customers in a timely manner.
At the FinTech Financial Future Summit forum held by Business Next on April 11, 2016 in Taipei, Sandy Kemper, founder of Kansas-based financial technology company C2FO, spoke about his journey as an entrepreneur. Kemper opened with an example of Chien-Ming Wang, a player for the Kansas City Royals who only recently returned to the mound, praising his competitive spirit, which is just as impressive in entrepreneurs.
Kemper, who has a lot of entrepreneurial experience, noted that Kansas and Taiwan both have the manufacturing industry as their main industry force. In this industry environment, money management is a very important part of operations.
In 2001 and 2002, when the Internet bubble was about to burst in the United States, startups that were lacking working capital had difficulty raising funds through traditional channels. Although financial loans could solve $2 to $3 trillion of the worldwide $42 to $43 trillion-dollar funding gap, most small and medium-sized businesses and startups would still find it challenging to finance loans.
Establishing a fund-sourcing network to create a win-win situation
Kemper has firsthand experience of this pain. “At another company that I founded before C2FO, though we had many big clients, one morning the company’s chief financial officer came to my desk to tell me that because we were not being paid on time by our clients, we may be unable to pay our staff’s salaries,” said Kemper.
In the face of this dire outlook, Kemper sought out one of his clients that had not yet paid their balance and convinced the client to release an amount sufficient for him to continue his company’s operations. Although the customer did not pay the full amount, it was enough money that Kemper’s company was able to smoothly make it through that moment.
While basking in relief, Kemper realized that many companies have working capital funding gaps caused by outstanding receivables and payables, saying, “There must be a better way to connect people who have the money with those who need it.”
Thus, C2FO was born.
C2FO founder Kemper hails from a financial family in Kansas. Five generations of Kempers have been in the financial industry, and in the early years they managed one of America’s premier banks in the midwestern United States. Kemper ancestors provided loans that helped found the Bank of America and also helped Henry Ford, the founder of Ford Automotive, establish his automotive business.
Although born into banking, Kemper jokes that he was a black sheep of his family, always doing something different compared to the rest. In 2000, he left the financial industry and started six businesses one after the other, and even jumped into the “enemy,” financial technology, and founded C2FO. His biggest concern is helping to advance businesses.
“The financial sector has always been the money mediator between suppliers and customers, but this is not reasonable,” he says. Kemper believes that inserting an intermediary bank for cash flow in the two-party relationship between suppliers and customers lowers efficiency, creates uncertainty and introduces greater risk.
They have come not to destroy the financial industry but to fill a gap
C2FO has established a working capital supply network for businesses. C2FO meets the needs of both sides of the platform, allowing customers to set a target reward for every order, but also allows suppliers to offer early payment discounts, an incentive for them to be paid quicker. The greatest benefit of this approach is not only that it improves capital utilization efficiency, but also reverses the original unbalanced model where the buyer decides when the payment will be issued.
Kemper said that a customer that has sufficient funds can receive a discount for paying in advance receives a return on their investment, while a supplier in urgent need of funds receives the working capital they need in a timely manner, thus creating a win-win situation.
C2FO is currently offered in seventeen countries, and its customers include world-renowned companies such as Costco and Amazon. C2FO investors include Skype co-founder Geoffrey Prentice, well-known Silicon Valley investor Peter Thiel, Singapore’s Temasek Holdings, and Union Square Ventures, which has previously invested in Zynga and Twitter.
Kemper says, “As a child, I liked to dismantle things. Usually, I would have taken something apart before even knowing how to put it back together.” For him, the process of founding C2FO is like dismantling an unreasonable financial model and then trying to find a better mechanism. Since March 2010, from the first transaction on C2FO until today, the market has handled more than $48 billion in early payment transactions.
Kemper says that he came not to destroy the financial sector’s business – after all, only $2 to $3 trillion dollars of working capital finance are provided by banks in this world – but to address the $42 to $43 trillion of accounts receivable or accounts payable on the books of businesses on any given moment of any given day. He believes that risk-based underwriting of working capital is a relic of a broken financial system. The solution is to, “Build a marketplace that’s easy for suppliers to use and easy for buyers to put money into at rates that work for both parties.”
C2FO currently has an office in Hong Kong, due to the number of small- and mid-sized businesses in Taiwan, with many doing business on both sides of the Strait. C2FO is actively planning to enter Taiwan and open up the market there.