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Supplier Finance to Enhance Working Capital and Reduce Risk

by Michael Friede, Head of Global Procurement Intelligence, Bayer MaterialScience

In late 2008, the Bayer holding company undertook a large working capital project across all business areas. As part of this project, the CFO tasked the working capital team to come up with innovative ideas for increasing days payable outstanding (DPO) without compromising suppliers. Supplier financing was an ideal solution to this problem, with a range of advantages:

Suppliers can take advantage of Bayer’s attractive refinancing conditions, and both reduce their financing costs and increase financial flexibility by accessing a cost-effective source of financing. In addition, they can reduce utilisation of their own credit lines and optimise their own working capital through a reduction of days sales outstanding (DSO).

Bayer can extend its DPO, manage working capital more closely and cut the number of external payments. The risk of supplier bankruptcy is reduced, therefore mitigating supply chain risk, and strengthening ties with suppliers. Furthermore, the overall process efficiency in Accounts Payable and within operation Procurement processes is improved.