German brakes systems and rail equipment provider Knorr-Bremse is “still working on” the challenges of setting up some form of inventory finance programme, said Pietro Solazzo, corporate finance and treasury manager at the company, speaking at the SCF Forum in Amsterdam.
The Munich-headquartered firm has run a supplier finance programme since 2007 using Deutsche Bank’s db-ebills supply chain finance platform, using it as a means of extending payment terms while ensuring key suppliers stay in business.
But Solazzo said the company is keen to find a way to use inventory financing to release more cash from the supply chain. He said that, because of the project-led nature of Knorr-Bremse’s business, there are sometimes instances where a buyer is not yet ready to take delivery of a finished piece of equipment. When that happens, the equipment stays with the company as inventory, clogging up the balance sheet. He explained that under one possible off-balance sheet solution, an op-co (operating company) could purchase the equipment and hold on to it until the products can be taken by the customer.
However, Solazzo said that after talks with auditors, the company still has a lot of “unanswered questions” about the use of inventory finance and whether off-balance sheet structures are viable solutions for this specific industry. “When you want to do something from an off-balance point of view, you need to really discuss it before with your auditors before you discuss it with customers or suppliers,” he said.
The company’s SCF programme has been a “success” over the last decade, he said, explaining how it has helped the company ensuring the stability of their suppliers. “We are a niche market. We also reduced our counterparty risk. We need our suppliers for our product. We are in a very high security sector. If one piece not working, then we have a problem,” he said.
Solazzo added that the company chose the platform and as it wanted to move away from the dynamic discount model and look to rather extend payment terms with suppliers. The Deutsche Bank platform has supported the company because it is able to cover different geographies and manage numerous currencies.