Implementing a Supply Chain Financing Programme
by Fabrice Legoux, Director, Operational Finance, Liberty Global
At Liberty Global, we pride ourselves on being an innovator in our use of technology, and the quality of customer service that we offer. This commitment to innovation and efficiency is apparent across the whole business, which includes treasury and finance. Consequently, two years ago, we started to increase our focus on trade and working capital management to improve our financial efficiency and increase the resilience of our supply chain. One of the most significant outcomes of this was to implement an innovative and highly successful supply chain finance programme with ING.
Options for working capital improvement
As a business operating largely in the B2C space with a large proportion of direct debit receivables, we recognised that we had limited opportunity to optimise collections further to enhance our working capital position. Instead, we could achieve the most significant improvements by extending supplier payment terms, particularly for suppliers of large capital items. One option was to negotiate new payment terms directly with each supplier, but this would have taken time and potentially jeopardised our relationship, in direct contrast with our objective to improve the resilience of our supply chain. The other, preferred option, was to introduce new standard payment terms across our organisation, but to launch a supply chain finance (SCF) programme concurrently, in order to avoid any negative impact on our key suppliers.
Partnering for success
We appointed ING as our partner bank for two of our three SCF programmes for a variety of reasons. ING is one of our core banks, which was an initial requirement, and we have had a long, successful relationship during which we have been impressed by their knowledge of our business and of the wider industry. The ING team has been consistent in listening to our needs and responding with robust, innovative solutions that meet our requirements. Working with ING, we identified a number of key objectives for the SCF programme:
Firstly, we wanted to achieve working capital benefits by substantially extending payment terms up to 360 days;
Secondly, the programme should be attractive to key suppliers in order to cement our relationships with them and enable our procurement team to negotiate favourable pricing;
Thirdly, the programme needed to be scalable to support our long-term business plan.
Implementation in practice
We put a great deal of thought into project management, resourcing and new business processes in advance of the project. This allowed us to implement our two SCF programmes very rapidly: the first took three months between contractual completion and the first invoice financed through the programme, the second took only six weeks. There were a variety of reasons why we were able to implement the programmes so quickly and successfully, which is not always the case with SCF programmes:
A project of this nature can be very challenging to implement, not least because various departments are involved, including treasury, finance, IT, legal, procurement and accounting. Therefore, while the resource requirement is not excessive, each department needs to prioritise the project, share common objectives and co-ordinate activities. We worked hard to establish this cross-functional dialogue before the start of the project to ensure common objectives and expectations. While ING played an instrumental role throughout the project, it was important that we took ownership from the start.
Review and enhance processes
Another key success criterion was to define and document the business processes to be adopted once the SCF programme was in place. We assessed our existing purchase-to-pay framework, including receiving, validating and processing invoices, and identified changes and improvements that we could make as part of the implementation, particularly to accelerate the period between receiving the invoice and submitting it to the SCF programme. We established ‘VIP lines’ for suppliers that were part of the programme in order that these invoices could be flagged for priority processing.
Identify target suppliers
Finally, it was important to identify clearly the target list of suppliers. With around 15,000 suppliers, it was not feasible to onboard our whole supplier base, so we focused initially on key suppliers with the highest invoice value and with which we have a medium- or long-term relationship. We identified our top 20 suppliers of capital equipment and explored their profile and relationship with Liberty Global, including contracts in place, any disputes, requests for proposal outstanding etc. With a high degree of confidence in high-value, recurrent business, we derive the most value by onboarding these suppliers onto the programme first. Having identified key suppliers, we then designed an onboarding strategy which was handled by a specific team from our procurement function, including a timeline for each supplier and specific collateral to support the onboarding process.
This approach was very successful and we onboarded 95% of our target suppliers on time; there is now only one of our target suppliers who has not yet joined the programme. Our suppliers recognise that the new economic realities put pressure on working capital for all organisations, and they have welcomed our SCF programme as a means of enhancing their own liquidity position and cementing our relationship with them. In addition to our internal onboarding team, ING played an important role in supporting the process, maintaining project momentum and remaining responsive to our needs.