Raffaele Sadun: CFO at Fintech Platform C2FO Discusses New Approaches to Working Capital

We recently spoke with Raffaele Sadun, CFO of C2FO, a US-based global Fintech platform that’s on a mission to provide every business with equitable, convenient access to working capital.

As Sadun explains, working capital isn’t just nice to have — it’s essential for business growth and survival. He says that much of the financial industry is failing to truly serve all companies because they’re entrenched in old ways of thinking. It’s something that C2FO is trying to change with a fresh lineup of capital solutions.

Our discussion with Raffaele Sadun is shared below.

Crowdfund Insider: With rising interest rates and the tightening lending market, what’s at stake for businesses today?

Raffaele Sadun:  For some businesses, everything is at stake.

When you have rising interest rates and a tight lending market, that makes it increasingly difficult for companies to access working capital, the funds they use for their daily operations. And this is going to impact all businesses, from large enterprises to smaller companies. If smaller companies don’t have money to make payroll, buy inventory and simply keep the lights on, they don’t have a business. That’s one reason why so many startups were shaken up about the bank collapses earlier this year – they had no idea how they were going to pay their people. It creates a worldwide existential risk for businesses, their customers and their employees.

The need for working capital goes beyond survival, though. Surprisingly, it is often the fastest-growing companies that run into cash flow challenges Click to Tweet

The need for working capital goes beyond survival, though. Surprisingly, it is often the fastest-growing companies that run into cash flow challenges. They want and need to invest in their growth, but are held back from doing so because they are waiting to get paid. This can happen, for example, when a smaller company gets a big contract with a large retailer and then has a huge gap to make up for with product to supply the order.

Unfortunately, funding options haven’t been great for many growing businesses. Assuming they can secure lending, they’re usually paying much higher rates. Or they’re giving up precious equity for the opportunity to advance.

Our company, C2FO, is working to change the dynamic. We created the largest platform where businesses can work with their enterprise customers to get paid early — by weeks or even months — in exchange for a small discount and using our Name Your Rate technology. This helps businesses access cash much faster, with less complexity and typically at rates that are below what they would pay on a term loan or factoring facility.

Crowdfund Insider: We hear a lot about the challenges that small and medium businesses and women- or minority-owned enterprises face when it comes to the lack of access to working capital. Why haven’t we found a solution to crack this issue?

Raffaele Sadun: Part of the problem is few have imagined anything better than the financial systems that we have used decade after decade. Those institutional structures just aren’t meeting the needs of small or diverse businesses — and businesses in general — anymore.

Part of the problem is few have imagined anything better than the financial systems that we have used decade after decade Click to Tweet

Traditionally, if your business needs money, what do you do? Everybody tells you to go to the bank, fill out the requisite paperwork and make your case to a loan officer. But that doesn’t work for many businesses because those lending institutions have such strict standards for loan approvals — and they’re only getting tighter as efforts to slow the economy and control inflation are deployed. According to the Federal Reserve’s most recent Small Business Credit Survey, only 53% of small employer firms that sought traditional financing received the full amount they requested.

We’ve seen companies that are performing well and have significant receivables get locked out of the financial system — traditional lenders don’t want their business. If the bank won’t help them, they may turn to other options, such as factoring, which will put money in their accounts but also burden them with multiple fees and overly restrictive terms. In many cases, businesses also have to give up significant control of their client relationships — which is a total nonstarter for many entrepreneurs.

The only way any of this changes is if the financial industry rethinks how it operates.

At C2FO, we know that there is a significant amount of capital tied up in a company’s receivables. It’s not uncommon for some vendors to wait 60, 90 or even 120 days to receive payment, even when their clients include some of the largest, best capitalized corporations on the planet. Even though they have plenty of cash on hand, the big companies have the leverage, so that’s just how things work in the lending environment today.

C2FO’s platform creates an incentive for large enterprises to pay their suppliers sooner – if the suppliers offer a discount on their invoices. In this scenario, all businesses benefit and are better able to meet their targets. Buyers get a competitive discount that suppliers are comfortable with providing and suppliers get paid faster and gain the flexibility to choose when and how they deploy their invoices. In the fourth quarter of 2022 alone, our buyer customers averaged more than $1 million in gross profit and EBITDA from C2FO. And on the other side of things, we funded more than $78 billion to supplier customers worldwide through our platform last year. As a result, we accelerated 36 million invoices around the globe in 2022.

As you can see, it’s a win-win situation for every business involved.

Crowdfund Insider: What value do SMBs and W/MBEs bring to the overall economy, and how do we fix the lack of support?

Raffaele Sadun: The small business sector is an incredibly dynamic sector of the US and global economies, rapidly creating new ventures and jobs. Women and diverse entrepreneurs, especially, deserve a lot of credit for that progress here in the states.

But when it comes to getting the capital they need to scale or even just continue operating, the necessary support just isn’t there. The Federal Reserve has found that minority-owned employer businesses are much less likely to be approved for the full amount of traditional lending they seek. Women entrepreneurs have reported similar problems.

And that has consequences for them. If they don’t have the capital to hire employees and continue to expand, they produce smaller revenues.

Innovative thinking like that which inspired the creation of C2FO’s platform and working capital products is one of many steps that can be taken to improve prospects for women and diverse entrepreneurs. Last year alone, C2FO’s platform provided $4.7 billion in funding to minority- and women-owned businesses. This was an increase of 27% over what was funded in 2021. This growth reflects the growing need for fast, flexible and equitable access to working capital.

Last year alone, C2FO’s platform provided $4.7 billion in funding to minority- and women-owned businesses. This was an increase of 27% over what was funded in 2021 Click to Tweet

Looking more globally, we’re actively working with government in India (and other locations) right now to help modernize the way in which businesses get paid by their vendors. In India specifically, we were granted approval from the Reserve Bank of India to set up a Trade Receivable Discounting System last year as the country focuses on supporting small and medium enterprises. Similar undertakings in other countries would make a huge impact on the global economy.

Crowdfund Insider: Are there other solutions that businesses may not have considered before when it comes to supporting their supply chains?

Raffaele Sadun: Many supply chain finance (SCF) programs are run through a single funding partner like a bank, which is riskier than many realize. If your SCF lender’s appetite for risk suddenly dries up, it can unplug your program, leaving you and your suppliers scrambling for a new partner. In extreme cases, this can be another existential threat.

C2FO solves for this with our multi-funder Dynamic Supplier Finance (DSF) program. Businesses can finance early payments to their vendors either with their own balance sheet or from C2FO’s network of trusted funders. The upshot is that C2FO’s DSF program can always be on, always available to a business’s supply chain, even if the company needs to conserve its cash in the short term.

Another option? We’ve seen several clients find success with dedicated early payment programs for small or diverse-led businesses. If an organization wants to prioritize those vendors, it can set up a program where participants can automatically access faster payment at preferred rates.

Walmart is an excellent example of an enterprise that has created a specialty program for its diverse-owned suppliers. Its Supplier Inclusion Program, launched in 2021, is powered by C2FO’s technology and platform. The company provides low-cost capital to nearly 3,000 diverse suppliers in its network. Last year, the program hit a huge milestone — achieving $1 billion in accelerated payments to its network of diverse suppliers in a single fiscal year.

Crowdfund Insider: Why are some solutions better than others, and how does C2FO offer access to lower-cost capital than banks?

Raffaele Sadun: Our technology and partnership with big buyers allow us to bypass some of the middlemen in the financial services space. By connecting buyers directly with their suppliers, we eliminate risk-based underwriting, which provides suppliers with access to faster, more flexible, and lower-cost capital. Suppliers are already set up to do business with their buyers, who have already purchased those goods from their suppliers. There are no loan documents, and no underwriting needs to take place.

Our platform not only saves time and money. It also opens our services to a wider range of businesses than traditional financing institutions can and allows a broader set of suppliers to access cash that they might not have been able to access before.

C2FO is proudly supplier-centric. We’re constantly looking for new and better ways to get small and mid-sized vendors the working capital they need, on terms that work for them.

That being said, our products and services also bring a lot of benefits to buyers. Through our suite of products, buyers can earn better returns on their cash than they would through other means, enhance their supply chains and relationships with their suppliers, and strengthen their balance sheets. Last year, we provided approximately $400 million in profit to our enterprise buyer customers.

Our expertise is businesses — all businesses — and their need for capital. With hundreds of thousands of businesses around the globe a part of our network, C2FO works daily with members of the Forbes 100 and their supply chains to provide them access to working capital so they can grow and thrive.

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