How Early Payment Can Help Your Business Survive a Recession

Are you recession-ready? Early payment can help you secure the working capital you need during challenging times.

Storm clouds are gathering over the economy: According to a May 2022 survey by the Conference Board, at least 60% of global CEOs believe a recession will occur in their primary region of operations by the end of 2023. The best way for a business to survive any economic downturn is by having reliable sources of working capital, and one of the best ways to secure working capital is through an early payment program.

In times when cash dries up and banks pull back on lines of credit, an early payment program with your customers can be crucial to generating the cash flow needed to run your business.

Now is a good time to look into early payment, if you haven’t done so already. For a program like C2FO, generating more cash flow is as simple as logging in and selecting which customer invoices you want to receive early payment on.

Preparing for the next recession

Many business owners have painful memories of the Great Recession of 2007-10, when so many companies were forced to close their doors. If you were in operation then, you probably had customers that went out of business. Maybe you experienced a cash crisis or a disruption to your operations because a bank pulled back on your line of credit.

It doesn’t have to be that way during the next recession. Unlike then, there are early payment programs today that can enable you to accelerate receivables from customers, maintain a steady cash flow to get through lean times, and become less reliant on the whims of traditional lenders.

In times of trouble, we all tend to hunker down and stick with the familiar. We want to rely on that financial provider that’s served us for so many years, or we want to trust that the customer who makes up a sizable chunk of our business will continue to make timely payments.

That seemingly safe approach, however, may be the riskiest thing you could do in a recession.

Why is this a good time to consider an early payment program for your business? Here are four key reasons:

1. Less risk and greater flexibility for working capital

An early payment program can be another source of working capital for your company. That’s especially useful during times when cash is hard to come by.

C2FO’s early payment program helps companies reduce financial risk by accelerating receivables at reasonable discounts, ensuring quicker payments. Unlike other alternative forms of financing like invoice factoring, there’s no buying of invoices by a third-party, no locked-in rates and no fees.

With the C2FO platform, you work directly with your customers, set your own invoice discount rates and finance the invoices on an as-needed basis. For example, instead of waiting 60 to 90 days on a big-box retailer to pay an invoice, you designate a discount on the invoice for early payment. If that customer agrees to the discount, the invoice amount appears in your bank account within a few days instead of two to three months. The only “fee” you pay on the transaction is the discount that you and retailer agree upon.

This kind of flexible funding is especially crucial during a recession. Having a program that offers variable rates can help you avoid paying excessive interest on your invoices.

Early payment can also serve as an alternative to traditional financial partners.

One of the first things that will happen during an economic slowdown is conventional sources of credit will tighten. The capital you use to finance your business may become more difficult, if not impossible, to obtain.

That’s what happened during the Great Recession, when banks’ balance sheets, capital allocation and lending practices came under scrutiny. A wave of regulations made banks more risk-averse and less likely to lend to growing businesses. Many businesses saw their lines of credit cut or pulled entirely. In other words, traditional sources of capital dried up.

Collecting early payments on receivables can be a much-needed extra source of working capital during a recession. It can also shield you from the trickle-down effect of your customers’ credit problems.

2. Fewer interruptions to your business

What if one of your key suppliers suddenly couldn’t produce a key component that you use in your products? Their problem is now your problem.

Fortunately, there’s a solution. With an early payment program like C2FO, you can accelerate payment on the troubled supplier’s invoices to help them avoid the component shortage.

Even in prosperous times, your company may experience the financial squeeze between waiting 60 or even 90 days on customer payments and meeting the pay terms of your vendors.

That squeeze will intensify during a recession, when customers may impose longer pay terms to protect their own cash positions.

Think about it. If a major customer has to extend their payment terms by another 15 days—at a time when cash is already tight and your line of credit is at risk—that extra time could devastate your ability to do business. Suddenly, managing your supply chain and even meeting payroll could be at risk.

If you and the customer are already transacting through a program like C2FO, you have a channel through which to receive early payment on those invoices. You may have to increase the discount rate you offer on those receivables, but you’ll receive payment early and will have more cash on hand to pay your suppliers, pay your employees and preserve the business you already have.

3.   An easier way to build working capital

A common reaction from many company executives who start using the C2FO platform is “This is too good to be true.”

That was Jack Leal’s initial response. The CFO for Houston-based Petrochem Field Services couldn’t believe he could set the discount on an invoice, notify his customer and quickly learn if it had been approved, all with just a few mouse clicks on C2FO’s software.

“I was a little nervous the first time we pushed that button,” he said. “Then we saw the emails start flying through, and we get notified by our bank that the monies are there the next day, and it was pretty impressive.”

Compared to other forms of financing, early payment through C2FO is easy. There’s no debt or lengthy approval process, as there is with a traditional line of credit. There’s no confusing paperwork, third-party interference or litany of fees, as with other forms of financing. All you pay for is the discount you offer on customer invoices. And you can use early payment on an as-needed basis.

Advantages of C2FO’s early payment:

•     No fees – you only pay for the invoice discounts you offer
•     No contracts or long-term commitments
•     No debt
•     Easy account set-up and no paperwork
•     No third party – early payments come directly from your customers
•     Payment in as little as 24 hours

During a recession, the competitive cost and ease of using C2FO can be your company’s secret weapon for generating the working capital you need to survive, and even grow, during an economic crisis.

4.   Customers want you to use early payment

C2FO was built during the aftermath of the Great Recession—not an ideal time to start and grow a company.

Why was C2FO’s early payment program able to thrive at that time? Because large enterprises saw early payment as a way to pump liquidity into their supply chains, while also generating a return on their invoice payments during a zero-interest-rate environment.

When another recession occurs, you can take comfort in that your customers will put cash into the C2FO program, because there will be few other places to put it.

The enterprises that use C2FO see it as a way to improve supplier relationships and generate consistent returns on their excess cash. Their decision to install C2FO’s early payment software into their systems also make quick payments available to you at fair, flexible and competitive prices.

Early payment programs like C2FO also make it easier for enterprises to manage their accounts payable.

In 2013, at Indiana-based wholesaler Do it Best Corp., the company’s accounts payable department was flooded with calls from suppliers who were desperate to be paid early. C2FO’s early payment platform made it easier for Do it Best to manage that process.

Previously, verifying invoices and handling early payment requests could take the company’s team 100 hours a week. C2FO streamlined the process, reducing the time and effort required.

Do it Best had available cash flow at a time when many companies did not. The wholesaler didn’t need to partner with C2FO on an early payment program in 2013, but company officials saw the advantages early payment could bring to Do it Best, as well as to its suppliers.

Today, hundreds of companies offer C2FO’s early payment program to suppliers because they recognize how all parties benefit.

The bottom line

No one knows exactly when a recession will strike or how long it will last. The so-called experts have been wrong many times before. Still, regardless of what happens in the coming months and years, your company can only benefit from having an extra source of working capital in its back pocket.

This article originally published April 2021, and was updated June 2022.