For a couple of weeks now we have been bombarded with mails from Amazon about their new “Early Payment Program” in cooperation with C2FO.
Since we are basically curious, we registered with one of our vendor accounts and took a closer look at this new Amazon program for cash flow improvement.
What is the Amazon Early Payment Program?
Amazon’s invitation came with a cover letter from Tim Haladay, Amazon’s vice president of finance operations. In it, he writes that Amazon has partnered with C2FO, a global leader in working capital solutions. Through their online portal, vendors can get paid early on their invoices from Amazon.
Since payment terms between 30 and 90 days are quite common at Amazon, this can already make sense for manufacturers or distributors who ship directly to Amazon.
How does the program work?
Amazon uses C2FO as its technology provider for the transaction. After a short registration the vendor gets access to the online portal of C2FO. This portal contains the Amazon invoices that have already been approved for payment by Amazon, but have not yet been paid out due to the payment terms.
Source: Screenshot C2FO Portal
The vendor can now select individual invoices (for example, the one with the highest due date or the one with the highest amount), offer a discount amount (cash discount) or an interest rate. C2FO then decides whether to accept the bid and, if so, awards the contract. The approved invoices are then paid with the next payment run (usually the next business day).
Important: The money comes as usual from Amazon, not from C2FO!
Who is C2FO, anyway?
C2FO is a financial technology company founded back in 2008 and sees itself as a marketplace for working capital management. On its online portal, it networks buyers and suppliers. The whole thing is intended as a flexible and uncomplicated system for optimizing financing and cash flow in direct contact between manufacturer and retailer, without the interposition of a bank and without expensive factoring or overdraft facilities.
C2FO is on the move worldwide, according to its own information the largest marketplace for working capital. More than 300,000 companies in 173 countries use C2FO, taking control of their own cash flow and receiving more than $1 billion in funding every week.
As recently as August 2019, C2FO received $200 million in funding led by SoftBank Vision Fund.
When does it make sense to use for vendors?
In our test, we received the following offer: for open invoices worth 64,000 EUR, we could have shortened the payment run by 20 days. For this, C2FO wanted a discount of 0.62%, which corresponds to an annual interest rate of 12%. Not exactly a bargain in the current interest rate situation….
Its use can nevertheless be useful when current cash flow deficits need to be eliminated quickly and easily without first having to go to the house bank. Advantage is also that offers can be made even for individual invoices. This is not the case with traditional factoring, where the entire portfolio usually has to be factored and no “cherry picking” is possible.
We found it disadvantageous that only invoices that have the status “approved for payment” in Amazon VendorCentral are in the portal. Invoices with the status “submitted” are not visible at C2FO. Especially for our direct import business, that would have been really interesting.
Invoice submitted – Vendor submitted the invoice in Amazon VendorCentral or via EDI to Amazon.
Approved for payment – Amazon has received the goods in its warehouse.
With direct import, there are easily 30 to 40 days between “invoice submitted” and “approved for payment”. Unfortunately, this time cannot be bridged with the Amazon Early Payment Program.
For whom does the Amazon Early Payment program make sense?
For all Amazon suppliers who want to shorten payment terms in a flexible and uncomplicated way. In particular, when a cash flow requirement arises at short notice or when goods are ordered from the manufacturer (e.g. in the Far East) and the payment terms differ. Or even if credit limits with trade credit insurers are insufficient during peak times, such as Christmas.
The Amazon Early Payment Program in cooperation with C2FO is not a cheap financing solution, but it is extremely flexible. It can be used when there is a need and it is also possible to use it only for individual invoices. The payment process remains the same, the money still comes directly from Amazon, there are no banks or factoring companies involved.