Caterpillar Strikes a Balance
by Michael McDonough, Executive Director, Supply Chain and Structured Commodity Finance, J.P. Morgan
As post-crisis equipment sales showed signs of recovery in 2009, global manufacturer Caterpillar saw challenges for suppliers who might struggle to finance ramped-up production. Rather than use its cash to support suppliers, Caterpillar chose J.P. Morgan to help balance working capital management and supplier liquidity.
We're extremely proud of the focused yet comprehensive solution we've built for Caterpillar. Their Supply Chain Finance Programme's capability continues to expand globally to meet the needs of all parties.
J.P. Morgan proposed a supply chain finance programme that in addition to funding offered global programme management and ongoing support for enrolling suppliers.
J.P. Morgan’s Supply Chain finance solution was deployed to hundreds of suppliers, standardising consistent payment terms and implementing electronic payment processing. Using a single platform, Caterpillar electronically presents selected invoices to suppliers who can then decide to take early payment at a discount, with J.P. Morgan funding the early payment. Available to selected suppliers in North America, South America, Europe and Asia, the solution is attractive to suppliers whose financing rate would more than offset the cost of payment terms standardisation.
By implementing electronic invoicing and standardising payment terms across its supplier base, Caterpillar was able to expedite payments across multiple divisions and streamline payables processing. Launched in 2010 in the United States and Europe, the programme is now rolling out to the United Kingdom, Latin America and Asia, and in its first ten months generated significant cash flow – 50% ahead of the original forecast.