THE WALL STREET JOURNAL. Wednesday, April 8, 2020 |A
We Have not Solved the
$16 Trillion Small Business
Liquidity Trap
An Open Letter to Governments and Central Banks
The world’s small and mid-sized businesses need our help.
A solution is within our grasp.
The greatest financial relief we can give small and mid-sized businesses in this crisis is
faster payment of their outstanding invoices — liquidity. The lending programs being
launched by the world’s governments and central banks for small and mid-sized
businesses are extraordinary, but will fall short in dollars, and will not arrive soon
enough for millions of businesses in dire need.
As the founder of a technology company that facilitates early payments of accounts
receivable, I am keenly aware that the average small business has only a few weeks
of cash on hand. Yet many of them have significant accounts receivable, often
representing 60-90 days of sales. The World Bank estimates that the world’s 150
million small and mid-sized businesses employ 60% of the working population and
generate nearly 50% of the world’s GDP. We estimate that these businesses are owed
more than $16 trillion by their customers, half of which are large companies.
What if we created low-cost funding specifically for larger companies to pay
their small and mid-sized suppliers immediately?
We would eliminate the need to underwrite loans for tens of millions of businesses,
which are already overwhelming traditional finance channels. Do this at scale and
we could create $8 trillion of immediate relief for the world’s small and mid-sized
businesses without causing them to borrow a penny.
A typical large company has thousands of suppliers, the majority being small and
mid-sized businesses. One credit facility to a larger company with a sizable supply
chain can advance funds to upwards of 1,000 small and mid-sized businesses, a
1:1000 amplifier effect. If just 20,000 such facilities were created, early payment —
liquidity, could immediately flow to over 20,000,000 small and mid-sized businesses.
Alexander “Sandy” Kemper
Founder and CEO, C2FO
Working Capital. Working for Everyone.
For further analysis of this pressing
challenge – and a workable solution,
visitC2FO.com/liquidity
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