Case Study: German Automotive
One of the top 10 German automotive companies has successfully started a supply chain finance programme with UniCredit. The idea orginated during the 2008 financial crisis, when the company’s supply chain was severely endangered. While the automotive part producer still enjoyed access to vital credit lines, thanks to its size and investment grade rating, many suppliers instead experienced a total collapse of their liquidity sources.
The core of the supplier base comprises very flexible but small manufacturers, whose unrated status is often seen as a problem for bank lending. In order to protect its suppliers from a sudden financial meltdown, the company was obliged to reduce its payment terms to zero. In fact the car part producer became the lender of last resort for some of the least known but strategic producers in the automotive chain.
After having realised the importance of securing liquidity for the end-to-end supply chain, the company started to think about a supply chain finance programme. UniCredit emerged as the best banking partner for the programme, thanks to the Trade Purchase solution. The professional advice, easy contract structure and state-of-the-art technology of the bank made it possible to fulfil all the corporate’s wishes.
Through Trade Purchase, UniCredit purchases the suppliers’ receivables, after the client has validated and uploaded them onto a web platform. This way, the suppliers can finance themselves at convenient rates, using the buyer’s better credit rating. On the other side, the automotive producer can even extend its payment terms, without running the risk of putting its supply chain in a financial hazard.
Although the idea was born during a phase of economic slow-down, Trade Purchase is now proving a formidable tool to support the virtuous cycle of business growth.
When sales orders picked up again after the crisis, some suppliers were almost overwhelmed and didn’t have enough working capital to cope with the higher production rates. As more goods got produced and delivered, though, Trade Purchase still provided a flexible mechanism to finance the increasing number of invoices from suppliers.
This way, the companies in the upper stream of the chain received the necessary financial means to keep investing and expanding their production capacities. “At some point I only had two alternatives,” commented a key supplier ”I could either consume all my working capital to fulfil the client’s orders, or I could use it to buy new laser-cutting machines, which were badly needed in my plant. Thanks to Trade Purchase, I am now able to do both: keep the production going and invest for the future”.
The benefits for the buyer and its supplier bases are not only for financials, however. Trade Purchase also represents a fully automated, highly efficient system for the management of accounts payables. When the client uploads his payables data onto the platform UniCredit takes care of all the processing from that moment onwards. Punctually at maturity, the bank debits the buyer’s account with the exact amount. If the supplier has not previously requested financing on the same payment, the bank disburses immediately the full amount into the account indicated by the supplier, which could be with any financial institution.
Both parties have the possibility of monitoring online on the platform the status of each transaction and receiving detailed reports on their current and future cash flows.