Published: November 01, 2014
In addition to its leading role in technology distribution in India, Ingram Micro India Limited (IMIL) aims to remain at the forefront of cash and treasury management practice. To fulfill this objective, IMIL recently embarked on an ambitious project with BNP Paribas to implement a sophisticated, centralised technology platform to automate and streamline payments, collections and cash visibility. By doing so, IMIL can deliver a better service to its customers, including resellers, distributors and retail stores, and forge improved relationships with its suppliers. In this article Prabakhar Iyer, Executive Director & Chief Financial Officer, describes some of the objectives, solutions and outcomes of this innovative project that firmly establishes IMIL as a leader in cash and treasury management efficiency.
At IMIL, we pride ourselves on the extensive, sophisticated, supply chain and distribution infrastructure that we have developed over many years. This has a variety of implications for payments and collections:
i. Collections
We provide IT products through a network of thousands of distributors in India across 37 locations on both ‘cash and carry’ and credit bases. The business is highly working capital-intensive with tight margins and significant competition. In addition to providing a high quality service together with a variety of value-added services, achieving a rapid, efficient collections process is of vital importance. Specifically, we need to realise cash as quickly as possible for working capital purposes, but also to reconcile and post amounts to customer accounts promptly and accurately. This frees up customer credit lines more rapidly, therefore facilitating more business: effectively a ‘win win’ for both IMIL and our customers.
In the past, achieving these objectives has been challenging, with a large proportion of resellers making payment using post-dated cheques, which were collected and managed locally. This created substantial administrative overheads with high operating costs and a variety of risks and exposures. With the increase in trade, and a gradual shift towards sales through large retail stores, an increasing number of customers wanted to make payments electronically.
ii. Payments
On the procurement side, we depend on a relatively small number of large international vendors, including HP, Samsung, Microsoft, Apple and Vodafone. To ensure security and consistency of supply, these suppliers need to be paid correctly and on time using cross-border foreign currency payments. In addition, we need to make a very large number of domestic payments to the extensive network of local vendors that support our sophisticated supply chain infrastructure and delivery channels in which we pride ourselves.
Managing payments, including the combination of high-value, low-volume international payments and low-value, high-volume local payments has been challenging for a variety of reasons. For example, when dealing with international supplier payments, the quantity and complexity of import documentation that is required is both challenging and time-consuming. As with collections, local payments have been decentralised in the past, working with local banks. This has resulted in additional administration and infrastructure costs, lack of economies of scale, and difficulties in standardising processes and controls.[[[PAGE]]]
We recognised that we could better achieve our cost and efficiency objectives by centralising our payments and collections activities with selected banks that best meet our needs. We therefore launched a request for proposal (RFP) to invite potential banking partners to design solutions that would meet our current objectives and support our evolving needs as our business continues to expand. Technology integration was particularly important, including host-to-host connectivity between the bank and our SAP infrastructure to standardise and streamline the flow of information and transactions.
Following a rigorous selection process, we selected BNP Paribas as one of our partner banks. There were a variety of reasons for this decision. Firstly, there was a strong relationship in place already, so we had a high level of confidence in the bank. Secondly, the quality of personnel and the degree to which each individual, from senior management through to project management and product experts, was engaged and committed to the project was impressive. Finally, the depth of solutions that BNP Paribas offered, particularly the bank’s expertise in providing electronic banking and integration services, and the unique scope of its outsourcing services, gave us the assurance that we would be able to achieve our objectives.
IMIL and BNP Paribas worked closely together to document business processes and design an integrated solution. This comprised a variety of elements that would enable us to centralise and optimise our payments and collections, including both cash management and trade processing, and improve cash and working capital management. This included outsourcing our most labour-intensive paper-based activities to BNP Paribas, therefore reducing operating costs and eliminating risks:
Payments
Collections
Cash visibility and control
Some of the specific characteristics of these integrated solution components include:
Communication and integration
BNP Paribas developed a tailor-made solution for integrating its host-to-host solution with our SAP infrastructure, which can be adapted as our needs evolve in the future. This solution underpins both payments and collections processing, and enables timely, complete visibility over transactions and account balances.
Payments management
Payment instructions, both high-value international payments and high-volume domestic payments, can now be transmitted electronically without the need for manual intervention.
Receivables management
By implementing BNP Paribas’ virtual accounts solution (eReceipts) we have access to unique, structured information that identifies each remitter within the collections file. This is then integrated into SAP using our proprietary formats to enable automated reconciliation and posting to each customer’s account. This is highly efficient, without the need for manual intervention, updating customer credit limits throughout the day to allow more business to be conducted.
In addition to the eReceipts solution, BNP Paribas provides an outsourced service to reconcile the payments received against invoices, with information often provided via multiple channels. Each of these payments is now tagged against the relevant invoice(s) by BNP Paribas’ central, expert team, enabling us to maximize automated reconciliations. Furthermore, this has reduced our operational burden substantially, freeing up resources for value-added activities.
Current and post-dated cheques
Cheques are now identified and sorted at the point of origin with separate drop boxes for current and post-dated cheques. This is supported with a mobile solution to transmit information in real-time to the bank, together with structured file exchange mechanisms for integration with SAP.
Post-dated cheques storage and processing has been outsourced to BNP Paribas, with cheques held in secure facilities and banked on the appropriate date at the relevant corresponding clearing centres using a combination of image-based clearing, speed clearing (clearing of upcountry payable at par cheques through a local participating bank), special correspondent bank arrangements and remote data capture techniques to accelerate clearing, maximise visibility of information throughout the clearing process and minimise the risk of error or fraud.[[[PAGE]]]
Import document warehousing
Our import document warehousing solution eliminates the resource-intensive process for managing import documents, tracking due dates and manual processing of payments. This is based on a convenient and powerful online platform that supports real-time information and regulatory compliance.
Ensuring project success
The project was highly complex, not least because of the need to involve both customers and suppliers. For example, we have nearly 40 collection centres, each of which had to be linked into the new IT infrastructure. Its success was largely dependent on the highly professional team comprising both IMIL and BNP Paribas professionals, who worked closely together throughout, from detailed planning and proof of concept through to solution migration, implementation and training. BNP Paribas was instrumental in providing technical solutions and expertise, insights into best practices, project discipline and a highly pragmatic approach to problem-solving.
As a result of implementing the new solution for payments and collections, we have been able to restructure our entire cash management process, replacing disparate, fragmented systems and processes across India with a centralised, standardised approach to transaction and information management. The project has delivered quantitative and qualitative advantages, both of which are critical in measuring its success.
Quantitative benefits:
Qualitative benefits:
IMIL is a highly enterprising, dynamic business, so we are continually looking for improvements in the way that we conduct our business. Over the coming years, we anticipate a significant increase in the number of electronic payments and collections, not least due to the shift in our business from wholesale distribution to large retailers, so B2B payments will become more important. While the nature of our business means that we have multiple banking partners, BNP Paribas continues to be an essential partner for us, with a unique electronic banking platform, an innovative, practical approach to solution design and delivery, and expertise and insights into industry best practices both in India and globally.
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