Solving the Liquidity Paradox

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Opening the floodgates of liquidity to growing businesses is more crucial now than ever. But how can that be done? 

The world economy has been in a slow recovery mode since COVID-19 swept across much of the globe in the spring of 2020. Most economists predict continued modest growth through 2021, even as the world still grapples with an ongoing pandemic. 

Despite this rebound, cash remains stagnant on many balance sheets rather than providing economic value. Meanwhile, the global supply chain continues to struggle for more efficient cash flow. 

This “liquidity paradox,” is a scenario in which corporations hold on to cash, making it inaccessible to companies that need it in order to grow. We at C2FO estimate that, as small to mid-sized enterprises (SMEs) struggle to build liquidity during this tough economic time, as much as $16 trillion worldwide remains trapped in accounts receivable

The liquidity paradox has been a worldwide problem for a long time. Although economies and regulations vary from one region to another, access to working capital remains a challenge for companies in every country and industry sector.  

Conditions surrounding this paradoxical economic situation include:

  • Cash on the balance sheets of large corporations was at an all-time high, yet the cash stockpiles were stagnant due to low and even negative interest rates.
  • Increased regulations for financial institutions stemming from the 2008-2009 financial crisis successfully led to banks becoming more structurally sound as they de-risked their balance sheets.
  • The de-risking that banks did to comply with stricter regulations curtailed the borrowing power of the SMEs that drive most economies.
  • The World Bank reported in September of 2015, “More than 50% of SMEs lack access to finance, which hinders their growth.” Corporates looked to payment terms extensions for their suppliers to improve their working capital, which further restricted cash flow and liquidity for SMEs. All these conditions remain in effect today, still hampering economic growth. 
  • Economic uncertainties and volatility brought about by COVID-19 have made matters worse. In a recent survey of more than 6,000 SMEs by small business social network Alignable, 42% said they are at risk of going out of business by the end of 2020.  

A solution to the liquidity paradox

There is hope to liberate working capital for all businesses, even during the most challenging times. 

C2FO’s unified platform is designed to help companies optimize working capital for themselves, their suppliers and their customers, all from a single, secure location. For suppliers, that means the ability to accelerate invoice payments on their receivables at discounts that work best for their business. For buyers, early payment through C2FO means a risk-free return on their cash while also helping to improve the financial health of their supplier network.

Today, C2FO matches accounts payable and accounts receivable for more than one million companies worldwide representing $10.5 trillion in annual sales. The result of this collaboration between buyers and suppliers is better access to working capital for companies that otherwise may not have the capital they need to grow. Buyers can also use C2FO’s platform to manage their own receivables, choosing to accelerate or extend invoice payments from their customers at times that work best for their own cash flow. 

To learn more about how the C2FO platform can break the liquidity paradox for you, your suppliers and your customers, visit https://c2fo.com/enterprises/our-platform/