Kemper: Liquidity, Not Lending, for Businesses

“The greatest financial relief we can give small and mid-sized businesses in this economic crisis is faster payment of their outstanding invoices—liquidity.”

With that declaration, Kansas City’s Sandy Kemper, founder and CEO of C2FO, is calling for a different approach by world governments scrambling to shore up cash-strapped small businesses during the global COVID-19 pandemic and economic depression.

In a letter this week to the Washington Post and New York Times, Kemper draws on his own experience solving cash-flow challenges: That’s the C2FO business model, and it has been used to generated $100 billion in faster B2B payments over the past year.

He calls the efforts by governments and central banks “extraordinary, needed and laudatory,” but says they miss the point because they “will fall short not just in terms of dollars, but more critically, they will not arrive soon enough for tens of millions of the world’s small and mid-sized businesses in dire need.”

While small businesses, Kemper writes,  rarely have more than a few weeks of cash on hand, many have considerable accounts receivable—often equal to 60 or  90 days of sales. “A small business with $4 million in annual sales and terms of 90 days has nearly $1 million trapped in accounts receivable,” he writes, “Moreover, with the pandemic, payment terms are extending rapidly as even the largest companies in the world look for ways to increase cash on their balance sheets.”

Globally, more than 150 million such companies combined are owed more than $16 trillion by their customers, half of which are large companies. Kemper suggests that loans to those large end-users, premised on  immediate payments to their vendors, could be an $8 trillion shot in the arm for struggling companies.

“We would eliminate the need to credit underwrite, generate loan documents and approval processes for tens upon tens of millions of businesses which are already vastly overwhelming traditional finance channels,” he says. “Instead of borrowing, businesses would now simply be paid more rapidly by their large company customers, something that likely is much preferred over borrowing by all small business owners.”

An ancillary benefit, he argues, would be the protection of loans to larger, higher credit-rated businesses, rather than new ones to the marginal players. “Further, a typical large company has thousands of suppliers, the majority being small and mid-sized businesses. So, for one credit facility to a larger company with a sizable supply chain, you could generate a thousand-fold amplifier effect—or more.

The idea has been floated; now we wait to see whether it will be embraced—and how soon.