Cash & Liquidity Management

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Leveraging People and Technology for Value Creation Facing serious working capital challenges, the Bharat Petroleum Corporation engaged with their banking partner, BNP Paribas, to come up with a solution. Following implementation, the benefits of this project were found to be considerable for both the company and their customers.

Leveraging People and Technology for Value Creation

by Srinivasan Varadarajan, Executive Director – Corporate Finance, Bharat Petroleum Limited, India

The Cash Management University included presentations from companies with operations in a variety of regions.

The Cash Management University included presentations from companies with operations in a variety of regions, including Asia and Central & Eastern Europe, who shared their experiences on how they manage common challenges. The presentation by Srinivasan Varadarajan of Bharat Petroleum Corporation Limited (BPCL) together with Indrajeet Maitra, Head of Cash Management, Asia Pacific, BNP Paribas centred around optimising collections in India, and is adapted in the following article.

The Burmah Shell Group of Companies, first formed in 1890, was nationalised in 1976 by the Government of India, and ultimately renamed the Bharat Petroleum Corporation Limited (BPCL).The company is one of the largest state-owned oil and gas companies in India, and ranked 307 in the Fortune Global 500 (2009). Its primary interests are in downstream petroleum activities, including refining and retailing of petroleum products. 

Headquartered in Mumbai, BPCL saw 2009 revenues in excess of US$30bn, and is ranked as the seventh largest brand in India. It is also considered to be a pioneer of industry in India, and its implementation of SAP in 2001 was one of the largest and most successful projects in Asia.

Collection challenges

Bearing in mind the critical nature of our products and services, BPCL receives a subsidy from the Indian government in lieu of under-recoveries on the sale of petroleum products. However, as this subsidy falls short of the actual losses, we were facing pressure on the working capital front. In India, we have a primarily paper-based collection model (figure 1), resulting in a long cash conversion cycle with delays at each stage of the collection process of two to four days.

Furthermore, we recognised the operational risks associated with paper-based payment instruments and processes which might result in governance issues. Currently, despite the benefits of electronic payment methods, as figure 1 (‘Payment by EFT’) illustrates, electronic payments are unpopular and patchy in their implementation, often as a result of a lack of remitter information and lack of familiarity by bank branches in remote locations. Furthermore, customers are often reluctant to migrate to electronic payment methods as they lose the benefit of cheque float, and they need to change their operational processes. Consequently,until we implemented our new collection solution, only 30 of over 500 BPCL locations were using EFT, representing only 5-10% of customers.

Devising a solution

Despite the challenges, our aim was to implement a collection solution that could be rolled out across the customer base of over 10,000 partner-operated retail outlets across more than 500 locations in India. We needed to manage our working capital effectively with more rapid cash conversion. In addition, we sought to implement greater automation, including integration with SAP, and automatic upload of debtor records into SAP, with a high degree of accuracy in remitter identification for operational risk mitigation.We worked with BNP Paribas to create a new collection solution that would achieve our objectives and facilitate further growth in the future. There were various challenges in its design:

  • We needed to source remitter data in a uniform format;
  • The solution had to operate irrespective of the remitter banks; 
  • We needed to recognise that different locations had different processes and technical capabilities;
  • We wanted to be able to relay payment details on a near real-time basis to BPCL depots at remote locations across India.

We needed to manage our working capital effectively with more rapid cash conversion. 

The solution that the combined BPCL and BNP Paribas team devised is known as eReceipt, and was the result of extensive co-operation between diverse disciplines such as Cash Management, IT,Organisation and Method, and Compliance and Operation (figure 2). eReceipt is a secure online solution that provides a high degree of convenience,transparency and automation for BPCL Treasury, BPCL depots and locations. The solution is based on a unique target account number (TAN) which allows immediate identification of remitters.On request from the customer, external payments are generated using RTGS by the customer’s bank, and sent to BNP Paribas India, which then validates and transmits the relevant data to BPCL.The validation processes conducted by BNP Paribas ensure that data is complete and correct before being sent to BPCL,maintaining data and process integrity.This information about remitter and funds remitted by them is communicated almost on an online basis in XML format through the host-to-host connection between BPCL and BNP Paribas. This helps to update respective receivable debtor accounts in BPCL’s internal systems for clear information to BPCL depots and for easy reconciliation. BPCL distribution locations, storage depots and treasury retain full visibility over collections, and with no delays from customer payment to its receipt by BPCL, cash conversion is prompt and forecasting becomes easier.

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