Implementing a supply chain finance program that enhanced a bank’s cash flow needs and working capital ratios by 55%.
BRIEF
A global provider of supply chain solutions had a challenge in one of the countries in Latin America where ground transportation was very costly and their carriers expected to receive the payment as soon as the service was provided (immediate cash). The client needed to meet working capital ratios and this type of market practices prevented them to reach the goal established by head office.
The company asked for a solution to improve the ratios they needed to accomplish in a short period of time.
SOLUTION
After evaluating the client needs, the proposed solution was to implement a supply chain finance program in order to accomplish two client’s goal:
- Allowing the customer to reach its working capital ratios by increasing the Days Payable Outstanding (DPO) negotiating terms and conditions with the client’s transportation suppliers.
- Providing to the client’s suppliers the option to accelerate its account receivables through a payment discount structure.
A financial partner was selected in order to support above goals. Also, the bank was able to onboard suppliers in the cases they wanted to receive the payment before the maturity date at a discounted amount.
Results & Recommendations
The client enhanced its cash flow needs and working capital ratios by improving 55% the above indicators. This project became a “best practice” within the company to manage supply chain finance needs. Also, the company reached cost reduction due to the fact some tasks such as suppliers onboarding was outsourced and all the payment process was fully automated.
The suppliers were also benefited, as the client was able to support suppliers’ working capital needs with competitive funding rates.