Managing working capital can be challenging when customers want longer payment terms, said Lieven De Weder, group purchasing manager for Belgian group Puratos. The company is an international group with subsidiaries in 70 countries, specialising in the production of ingredients for bakery, chocolates, cake mixes and patisserie.
It invests heavily in R&D and innovation, out of a total of 7,600 employees worldwide around 1,000 are in its R&D operations and establishing good relations with its suppliers is one of the key elements to innovating.
Strengths of reverse factoring
De Weder outlined the value of the company’s reverse factoring programme. “We’d previously tried to reduce our working capital, but with customers wanting longer payment terms, we first trialled reverse factoring in Spain.
“There are two main opportunities from my own viewpoint in working with reverse factoring – we can extend payment terms and we can work together with suppliers to reduce the cost of financing,” he said. “Discussing the latter with them marked a new departure for the company. We depend on negotiations – we can’t simply implement a programme without talking to our suppliers first. We started with our bigger ones and decided how to proceed with the programme. There are a limited number of suppliers in our programme and we aim to pay them within 15 days of invoicing.”
A pilot was carried out with a group of seven suppliers. While some of them were enthusiastic, others confessed they didn’t know what the cost of financing was, De Weder said. This first phase of the programme launched in May 2017 and the company is now working on the second wave, with the company aiming to offer the programme worldwide. De Weder added that a user-friendly platform was also important and Puratos wants to look at SWIFT and straight-through processing (STP) connectivity in the future.
The implementation process began in February, when the mandate for Puratos’ global SCF programme was awarded to BBVA. “By June we were able to formally launch the programme with the first 10 suppliers,” he reported. “In the second wave we’re looking to extend it to the US and South America, and early 2018 will see international expansion.
“We want to avoid reclassification of the trade liability into financial debt,” he added. “Interest and costs should be paid by the supplier and no other financial information is generated for the buyer. The approval procedure for invoices is now being worked on by Puratos and it needs to be based on realistic expectations on prolonging payment terms. It includes non-recourse, so an approved invoice cannot be blocked for payment.”
De Weder concluded that for the purchasing department, reverse factoring represents an interesting tool – and one that acts as an accelerator to the centralisation of treasury.