CNBC interviewed Chris Dark, President International of C2FO on their Shake It Up program.
CNBC – Shake It Up
Adam Bakhtiar: The business of factoring is finally seeing some innovation. After a long period of stagnation, we see how one company (...)Read More
CNBC – Shake It Up
Adam Bakhtiar: The business of factoring is finally seeing some innovation. After a long period of stagnation, we see how one company is shaking up that space. Well, cash flow has of course been a core issue, the receivables for businesses, probably since the beginning of time, right? And for the longest time companies turned to factoring companies who could take on their invoices in return for cash, but for a pretty steep price. Well, the business of factoring is finally starting to see some innovation and C2FO is the first company to create a marketplace to match buyers and suppliers to help increase their liquidity. The company was founded by Sandy Kemper, who was a former banker who then went on to startup tech companies and it was his own problems with cash flow that led him to create C2FO and here’s his anecdote.
Sandy Kemper: I picked up the phone and I called Tom Restaino – to this day, I remember the call, I remember him, where I was, where he was – at ITT. And I said, “Tom, you know, everything is fine here. We’ve got about $1 million of accounts receivable from you, and we’re doing a nice job, aren’t we? And everything’s good at your place, right? Boy, this is – how about those Royals? Can you pay us early?” “Well, Kemper, why?” “Why? Just we’ve got some things we need to invest in, like payroll.” [Laughter] Wasn’t quite as transparent as that. But, “Do you think you could pay us early?” “Well, we’ll talk to finance, Sandy.”
Pauline Chiou: Yeah, that’s the issue because sometimes it takes between 40 to 60 days to actually receive the payment and this is a big problem for companies that are trying to meet payroll, for example. Let’s talk with Chris Dark, who is the President International of C2FO, the creator of the first marketplace for working capital. He joins us now live from Hong Kong. So you heard, Chris, Sandy’s remarks about the dilemma that a lot of companies go through. So, explain to us exactly how C2FO works because you’ve got some big clients like Costco, Amazon, Pfizer – and this is an online marketplace. How does it work?
Chris Dark: Right, so the problem that we’re solving for is that right now suppliers across the world are owed 40 trillion dollars by their customers and only about five percent of this is being financed by banks and other institutions. So, this is a gigantic problem and it’s a very global problem. So we created the world’s first marketplace for working capital where each supplier names a price that they’re willing to pay in order to be paid early. So instead of being paid in 90 days, they’ll be paid tomorrow.
Adam Bakhtiar: Right, and talk to us about how it actually works – the mechanics of this. Because one would imagine you’d have to have sort of a lot of volume or a brisk marketplace to at least not see huge divergences in what people are willing to pay for some of these invoices.
Chris Dark: Well, what’s interesting is that there is a very big divergence in what people are willing to pay. So anyone that’s run a small business or indeed any business knows that how much someone’s willing to pay for cash on any given day changes on a daily basis. So we see spreads as much as forty times, 40x, in the marketplace from those willing to pay the least to the most for the same commodity, which is cash.
Pauline Chiou: Okay so, Chris, tell us why a buyer or supplier would want to use C2FO because if you can actually get a discount by paying early why wouldn’t, say, a Costco go to Clif Bars and say, “Give me ten truckloads of Clif Bars and I’ll pay you early if you give me a discount.” Why would they need to go through you?
Chris Dark: Sure, so yeah Costco is a great example. So we asked Costco the same question – they’re one of our largest clients. And they said that, simply, there’s a couple of reasons. First of all, we just do it much better than if a corporate did it themselves. Because we’re laser-focused on running the world’s most efficient and largest marketplace. Most corporates have hundreds or indeed thousands of different priorities. But the more important reason is that really, we’ve built a huge network of hundreds of thousands of suppliers. And each supplier supplies, on average, more than one customer. And so a supplier wants to go to a one-stop shop in order to, in effect, order cash from their customers at a price that is fair to them that they come up with. So this network effect is really important and if you build it yourself you would never be able to build that network.
Adam Bakhtiar: Okay, let’s get to the money question, Chris, because that’s what we’re always very keen to hear about with these startups, these innovators shaking up business models. So you’re matching the buyers and suppliers for the accounts receivable here and obviously some people are gaining on both sides of this equation. What’s your cut?
Chris Dark: Ah, so well our cut depends. It’s completely free for the supplier, which is really important to us. They’re giving a small discount to their customer and that’s all that it costs them. And then we share the gain that their customer makes. So for every 10 million dollars a customer saves, we take a small cut from that.
Pauline Chiou: Okay, and let’s talk about currency fluctuations, because we’ve seen the volatility just this year with the strengthening dollar and the plummeting currencies here in Southeast Asia. I mean, you’re dealing with global players here. Are you recommending that they lock in currency rates? I mean, how do you deal with the currency fluctuations?
Chris Dark: So our market’s live in over seventeen currencies and so any corporate deals with each currency quite separately. And when you receive an invoice it’s always in one currency, so there’s absolutely no FX risk in the market because if you bill someone in dollars, they’re going to be paid in dollars. You’re not going to have riyal or other currencies in there, too. So we really leave the currency hedging and any FX up to the corporate, because it’s the treasurer and the CFO that wants to manage that, not us.
Adam Bakhtiar: Sounds like a great business model, Chris. I mean, you don’t have to absorb the collections risk, you don’t have to absorb the currency risk. Fantastic. And you get some cash flow moving for some of these companies. Great to have you on deck, Chris. Thanks for joining us. That’s Chris Dark from C2FO with a very innovative business model.Read Less
Dec 08, 2015