Liquidity Matters

Liquidity matters: Funding the future of business Insights from the 2016 Working Capital Outlook Survey Liquidity matters: Funding the future of business Insights from the 2016 Working Capital Outlook Survey

Whether you’re a finance or procurement leader for a Global 2000 company or the business owner of a small to medium-sized enterprise (SME), the findings of our 2016 Working Capital Outlook Survey can influence the success of your business.

Now in its second year, the C2FO Working Capital Outlook Survey examined the concerns and preferences for improving the working capital efficiency of more than 1,800 SMEs in the United States, United Kingdom, Germany, France and Italy. It included trends related to economic and political factors, financing, working capital deployment and supplier-buyer relationships, often comparing the latest results with last year’s survey findings.

We studied SMEs of varying sizes across many industries to better understand their finance needs and perceptions about business relationships with customers.

Why does this matter? Everyone knows that cash is king, and without the liquidity to run a business properly, there are negative upstream and downstream effects on the economy. The good news is that if global companies work together to improve working capital efficiency, everyone wins.

Survey highlights: • 55% of SMEs say cash flow is their biggest obstacle to business growth

• 52% cannot get funding at APRs below 8%

• More than 60% of SMEs are concerned about their ability to finance long-term growth

• 76 % rely on cash flow from operations to survive and grow

• 75% of businesses say it is important that their customers offer supplier-friendly accelerated payment options

Macro-factors affecting business growth This year’s survey included some questions about SMEs’ concerns surrounding the effects of Brexit and the upcoming US presidential election. Despite the uncertainty surrounding these events, the majority of SMEs are focused on long-term rather than short-term concerns and worry more about competition from emerging markets.

Overall 55% of SMEs surveyed considered uncertainty about customer contracts to be one of their top three business growth obstacles, 55% cited cash flow, 51% worried about overall economic and political uncertainty, 38% named the difficulty in adapting to market changes and %35 cited late payment from buyers. SMEs in different markets weighted the concerns somewhat differently, with businesses in Italy particularly plagued by late payments.

What are the top three obstacles affecting the growth of your business?

FR DE IT UK US Total

Uncertainty about customer contracts 61% 61% 50% 63% 52% 55%

Cash flow 52% 44% 44% 54% 60% 55%

Overall economic and political uncertainty 50% 58% 31% 51% 53% 51%

Difficulty adapting to market changes 43% 38% 26% 38% 39% 38%

Late payment from buyers 36% 33% 58% 37% 31% 35%

Inability to secure funding 34% 33% 43% 28% 35% 34%

Inefficient relationships with buyers & suppliers 24% 35% 48% 30% 30% 32%

Key learnings: • Late payments continue to be an issue and have long-term negative effects on the ability of SMEs to operate efficiently. Buyer companies should consider P2P automation solutions to evolve into “just-in-time” payables to support their supply chains.

• SMEs and their customers would mutually benefit from closer collaboration to alleviate uncertainty about payments, contracts and market conditions.

Borrowing can be expensive & difficult for SMEs More than 40% of the SMEs surveyed indicated their working capital needs have increased since last year. However, 29% said that they have limited or no ability to borrow short-term working capital. The situation was even more challenging for companies in the UK, where 43% said they had limited or no ability to get financing.

SMEs looking for financing were mainly concerned about inflexible and time-consuming processes to obtain funding and the increasing rate of interest requested by financial institutions.

Overall, only 48% of SMEs surveyed had access to financing at an annual percentage rate of less than %8 . Businesses in the US and the UK that can obtain funding, pay more to borrow compared to their counterparts in France, Germany and Italy.

What is your estimated cost of borrowing short-term working capital (APR)?

90%

80%

70% 58% 58% 60% 52% % 51 48% 47% 48% 50% 43% 42% 40% 29% 29% % 26% 30% 25 18% 20%

10%

0% France Germany Italy UK US Total

Limited or no ability to borrow APR <8% in 2016 APR <8% in 2015

Access and cost of borrowing vary by industry as well, with SMEs in media, retail & leisure and construction paying higher interest rates than businesses in other industries. These industries along with the food & beverage industry also have more limited ability to borrow.

What is your estimated cost of borrowing short-term working capital (APR)?

Automotive Consumer Products Aerospace & Defense Financial Sector Energy (Oil/Gas) Healthcare Technology Food & Beverage Construction Retail & Leisure Media 0% 20% 40% 60% 80% 100%

<2% 3-4% 5-6% 7-8% 9-10% 11-15% 16-20% 20%+ No/limited ability to borrow

Key learnings: • Buyers can provide access to funding at a cost that is in line with, or even less than, their suppliers’ cost of borrowing by paying their suppliers early in exchange for a discount that is agreeable to both.

• Early payment of approved invoices adds no risk for the buyer and can significantly improve supply chain health, particularly in support of SMEs with limited or no ability to borrow.

Cash flow from operations is vital for SME funding When asked about current sources of financing, 76% of SMEs reported that they use cash flow from operations to fund their business. This is incredibly important for buyer companies to keep in mind when considering programs to improve the health of their supply chain.

Compared to last year, an increasing number of SMEs are looking at invoice financing solutions, with almost 20% of respondents using supply chain finance, factoring or invoice discounting to improve their working capital. Businesses in every country have also increased usage of both traditional banking and more innovative programs such as peer-to-peer lending.

How does your business currently finance itself?

90% % % % 79 % 80% 77 76 76 71% 70% 58% 60% 57% 50% 50% % 43% % 42% 42 41 40% 38% 40% % 31 % 27%28 29% 30% 25% % % % % 20 20 20 % 21 % % % 19 18 18 20% 16 14% 15% 11% 10%

0% Traditional banking Invoice ﬁnancing Cash ﬂow from Private funding Peer-to-peer lending (revolving bank (SCF or factoring or operations credit line or invoice discounting) asset-backed loan) France Germany Italy UK US Total

Key learnings: • SMEs are willing to leverage cash flow from operations via invoice discounting if they have customers willing to collaborate.

• Early payment practices are already established with terms-based discounts, but there is a much larger opportunity to stimulate growth even further by unlocking the potential of invoices, due and owed.

SMEs focus on the future CUS O FO N When asked their level of concern about financing long-term versus short-term growth, more than 60% of SMEs overall said they were looking ahead to the long-term working capital needs of their business. The exception was Italy, where long-term and short-term 6PERC1ENT growth needs were more balanced, likely due to the economic and banking instability L O H N T the country is experiencing. G W O T E R M G R Among the largest SMEs surveyed, 73% reported a focus on long-term growth.

How would SMEs spend more cash if they had it? Of the companies surveyed, 29% would purchase more inventory or equipment, 20% would invest in new technologies, 12% would invest in employees through hiring, wages, insurance, etc., and 16% would expand operations by opening a new location, exporting to new markets, etc. The majority of the companies have forward-looking plans that could benefit their business, their customers and the economy at large, if and when they are implemented.

Key learnings: • Buyer organizations that partner with their supply chain can encourage each other’s success and grow together.

• Innovation drives industry advancements, so when SMEs can afford to innovate and make improvements to their business, their customers reap the benefits, too.

How C2FO makes the future brighter for SMEs & their customers In the US, the percentage of SMEs reporting that their customers often pay invoices late has decreased from 20% in 2015 to 14% in 2016. That is not the case in the UK, where reported late payments have increased from 11% to 20% in the past year. In Italy, 50% of SMEs say their customers often pay their invoices late.

However, 37% of SMEs say they would feel uncomfortable asking their customers for early payment in exchange for a discount. Therefore, it is not surprising that 75% of respondents feel it is important for their customers to offer supplier-friendly accelerated payment options. The existence of a program for early payment, as opposed to a one-off request, makes the process simpler all around.

The survey results show that SMEs are open to collaborating with their customers. When businesses collaborate to self-fund liquidity, everyone wins.

C2FO has created a unique market where businesses can Name your rate™ for working capital. Buyers with available cash set their optimal rate of return, and suppliers that need cash choose their desired rate for early payment of their approved invoices. That means C2FO offers peace of mind for the large percentage of SMEs that rely on cash flow for funding while providing cost savings to buyers.

With C2FO, businesses of all sizes can improve their working capital position at rates that are often less than their cost of borrowing short-term working capital. This gives smaller SMEs the operating capital they need and the ability to plan for the future by funding inventory, equipment, expansion and new hires. Larger SMEs may not need cash flow for operations, but they appreciate additional access to working capital to address strategic cash needs, reduce leverage exposure or enhance key performance metrics at quarter-end and year-end.

C2FO helps buyers and suppliers work together to optimize working capital across multiple tiers of the supply chain, ultimately making the future brighter as SMEs and their customers achieve their business goals.

Key learnings: • Establishing a formal early payment program improves supply chain health and buyer/supplier relationships.

• A large majority of SMEs believe it is important for their customers to offer supplier-friendly accelerated payment options. This indicates that they understand and appreciate the value of offering invoice discounts to buyers in exchange for early payment.

Some of the words that active suppliers in the market have used to describe C2FO

simple to use digital partner control good for small business the new future self-explanatory p l

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n beneﬁcial i n i e h z z g reat deal

helpful a e cient a stress-free h u g m m a no downside& b usiness tool C2FO eliminates risk s eamless u ser-friendly easy lifesaver a there when you need it

responsive eliable

genius d ependable cut above the rest

ﬂexible R fast control Instant gratiﬁcation a e asy

remendous asset essential

g reat idea smart

c onvenient win-win-win

T helpful a blessing Instantaneous cost-eective quick& I nnovative Safety net security pioneering great support aordable

DSO maximizer cutting-edgeprofessional C ontrol certainty fantastic wonderful fresh approach

C2FO key facts: • Since the C2FO market launched in March of 2010, the platform has accelerated payments a total of more than 220 million days (that’s 605,205 years). • Suppliers request early payment an average of 83 times per year, demonstrating their need for working capital. • Early payment is successfully awarded to suppliers who request it more than 91% of the time. • 93% of the suppliers in the market have used it to access working capital multiple times. • C2FO is designed to accommodate early payment of all approved invoices. The smallest early payment awarded to a single supplier to date was $99, and the largest was $384,814,148. • The key industries C2FO serves include retail, food service, technology/telecom, healthcare, services, manufacturing/CPG and energy. Many suppliers have buyers in multiple industries.

As the global economy continues to make it difficult for SMEs to get the funding they need, C2FO offers advantages to suppliers and buyers alike. Suppliers address their working capital needs, while buyers improve their bottom line and the financial health of their supply chain.

You might expect that getting “ cash earlier would be an expensive proposition, but with C2FO it isn’t.

– VP AND CORPORATE CONTROLLER ” FERRARA CANDY COMPANY

Ferrara Candy Company — USA

Ferrara is the number one non-chocolate candy maker in the United States. Their list of brands includes Brach’s, Black Forest, Trolli, Lemonhead, Super Bubble, Sathers, Fruit Stripe, Now & Later, Jujyfruits, Rain-Blo, Chuckles, Red Hots, Atomic Fireball, Bob’s, Jaw Busters and Original Boston Baked Beans.

As a large and fast-growing company with numerous customers throughout the US and Canada, Ferrara approaches cash flow strategically.

The company’s VP and Corporate Controller says, “Our largest working capital goals are to keep receivables low, get payments quickly and try to keep our line of credit as low as possible. Being able to accelerate cash from our customers through C2FO helps us with those goals.”

C2FO appeals to them because it helps them improve DSO with some of their largest customers, it’s easy to use, and the APRs to get cash are reasonable compared to their rates for borrowing.

Their use of C2FO has resulted in permanent reduction of their line of credit balances as they decrease their days receivable, which has strengthened their balance sheet.

– FINANCIAL CONTROLLER ” IPE SYSTEMS

IPE Systems — UK

IPE Systems designs, installs and tests broadcasting systems for radio and television. The nature of their business means their work is project-based, which makes short-term cash flow a challenge.

Financial controller Mark Thomas says, “We buy and install very pricey equipment, so we source the goods first and pay for them. Our receipts are dependent on milestones, so we’ll be paid in stages. C2FO is quick, easy to use and very economical. It’s incredibly beneficial to us as a supplier, and it can mean the difference between doing a job and not doing the job.”

Thomas says, “C2FO has been able to give us liquidity just when we needed it. It covers the dips in cash flow that we incur in doing business and it’s a whole lot better than factoring, where they take a cut of all your invoices whether you need the cash or not.”

“C2FO is the ideal solution,” said Thomas. “You can turn it on and off like a tap.”

– FINANCE ADVISOR ” CEDIR

CEDIR — Italy

For more than 40 years, CEDIR has offered the highest quality tiles and building materials that are designed and produced 100% in Italy. Historically, CEDIR has had very strong sales and continues to grow. However, after the global credit crisis, it has become more challenging for many companies to secure bank advances.

While CEDIR was able to access working capital funding, they found the C2FO option to be more favorable.

“The owners have been very happy with the C2FO rates. We use the money to pay our suppliers on time, and that’s good for corporate responsibility,” said the CEDIR Finance Advisor. He added, “In Italy, we’ve never seen anything like C2FO.”

By using C2FO, CEDIR saves around 300 basis points compared to borrowing. They like the simplicity of using the mobile app to set their offers and the convenience of using the market as needed, with no contracts.

2016 C2FO Working Capital Outlook Survey methodology & demographics A total of 1,874 CEOs/CFOs/Owners of SMEs in Europe and the United States were surveyed during the months of July and August, 2016. Annual business revenue ranged in size, some upwards of $70 million. However, the majority (80%) of businesses surveyed had annual revenues under $2 million.

Survey participants were asked a series of questions related to how they currently finance their growth, deploy capital and preferences related to working with their buyers. The purpose of this survey was to elicit responses that would uncover current perceptions around working capital financing and the impact of political and economic factors on funding, growth and business relationships.

This is the second year in a row that C2FO has conducted a survey focused on SME working capital needs, providing a comparative look into year-over-year trends. The 2016 survey introduced respondents from Germany, France and Italy in addition to businesses in the US and the UK, which were the main focus in 2015. ■

For more information contact us at: • [email protected] • US / +1 866.463.6565 • UK / +44 (0)20 3036 0332 • HK / +886 91974 8788 For more C2FO expert commentary, please visit c2fo.com.