Meet Startup @TW

Need money while waiting for clients to pay invoices? Meet this CEO

Any proprietor understands the excruciating lag between sending an order to a client and getting an invoice paid, sometimes months later. The small businessperson's own bills need to be settled in the meantime.

Some of those struggling entrepreneurs must use a credit card or get a bank loan to survive the wait period. Their demand for what's known as "working capital" during invoice payment lags inspired American entrepreneur Sandy Kemper to do something for them.

Kemper grew up in the U.S. state of Missouri and later became the CEO of UMB Bank, a family business of several generations in his home state. He went on to found and invest in fintech startups.

The man with his own Wikipedia entry has also founded and headed up educational organizations in the United States.

Now Kemper is chairman and CEO of C2FO, a market for working capital in which suppliers get their buyers to pay them early in exchange for discounts on their invoices. Kemper founded C2FO in January 2008 and the company's first trade was made in 2010. It now processes nearly US$1 billion worth of trades per week.

It has also served tens of thousands and suppliers -- the ones sending invoices -- from 61 countries. They come largely from China, India, Europe and the United States. At least 1,000 are in Taiwan, Kemper said.

Kemper will speak at the Meet Taipei conference, which kicks off Nov. 17. Meet talked to Kemper by Skype in late October to ask about C2FO and learn what he plans to tell the conference.

Kemper described to Meet how, as a banker, he often made loans to small and medium-sized enterprises that were suppliers to larger companies, such as Costco or Intel.

The loans were meant to keep the suppliers afloat while invoices were pending. Loan terms were based on the amount of each client's accounts receivable, but previously he had no way to verify those sums.

"So, it began to dawn on me that there was lack of transparency," Kemper said in the interview. "And the fact that I was underwriting, or as a banker, loaning money to that supplier based on their account receivable, and taking credit risk in doing so was wrong in my mind."

C2FO designed a scheme that scraps the usual workflow where a supplier borrows working capital from a bank and pays interest while awaiting payment from a client.

C2FO instead lets the supplier in need of daily cash meet the client that owes money and bid for early payment in exchange for a discount on goods.


C2FO is a marketplace where the two sides meet to agree how much of a discount a buyer of goods needs in order to pay the supplier early. To arrive at that number, C2FO software helps suppliers who are owed money set a rate that's less than financing a loan but enough to entice the buyer to pay early.

C2FO makes money on transaction fees and by lending to buyers without money to make the early payments.

"If the ultimate customer is the supplier, then our job is to get them working capital," Kemper said. "And if for whatever reason the buyer doesn't have the cash, we want to still be able to satisfy the request for cash to the supplier, so we'll step in and use our money and fund, and we'll share some of that profit with the buyer to thank them for helping us find that supplier.

“If you could match the account receivable to the account payable in a marketplace, you could eliminate forever risk-based underwriting of working capital," Kemper said.

If the scheme works, the supplier gets cash earlier than usual at a cost that's less than the interest they would have paid to a bank for working capital.

"Risk-based underwriting is a relic of a broken financial system," Kemper said. "The fact that we have to allocate equity in the banking system to help us underwrite the needs of our companies when they're borrowing against accounts receivable is a flawed process."


C2FO does not work "against the banks," Kemper added. Suppliers might seek its services simply because they max out on borrowing or just don't want to borrow from a bank, he said.

If banks wanted to lend to every business with accounts receivable, the total amount of loans would come to about US$4 trillion, less than one 10th of the total value of unpaid invoices in the world according to Kemper's estimates.

In September, his firm issued the results of its C2FO Working Capital Outlook Survey, which polled 1,800 small and medium-sized enterprises from five major economies including the United States.

It found that 55 percent of companies said poor cash flow was the biggest obstacle to growing a business.

C2FO's growth figures also point to a demand for its services, Kemper said. Since the first market transaction in 2010, the firm has grown at a compound quarterly growth rate of 69 percent, he said. It has set a goal of handling US$1 billion worth of transactions per day.

Kemper is keen now to explore use of new technology to make working capital exchanges more efficient.

C2FO is one of a kind as market for setting payments and timelines between two parties. However, it faces competition from lenders who specialize in clients that need cash while awaiting invoice payments.

Despite the limelight of being the only working capital market he knows about, Kemper hopes other entrepreneurs will try the same line of work so C2FO can find partners in a broader cause.

"Before I retire, what I want to see is a proliferation of markets like ours interoperating with each other just the way that equity and options exchanges interoperate today," said Kemper, 51, and still based in Kansas City, Missouri. "So we would welcome additional marketplace operators and we would ask them to interoperate with us so we can solve this problem faster for the world's economy."