Global supply chain manager, Li & Fung, traditionally fulfilled its trade financing needs through unsecured credit loans, which were both expensive and cumbersome. The company therefore required a solution that would enable them to more efficiently access credit, and at a lower cost.
Li & Fung Limited is a global supply chain manager primarily for US and EU brands, department stores, hypermarkets, specialty stores, catalogue-led companies and e-commerce sites. It engages in product design and development, raw materials and factory sourcing and capacity building, vendor compliance and distribution. It has over 250 offices in 40 markets and connects some 15,000 suppliers with 8,000 customers through its services.
Given its position in the market, global supply chain manager, Li & Fung process a large number of trade transactions on a daily basis. The company had established host-to-host connectivity with Citi’s payment factory, allowing it to automate the execution of many of these payments and alleviate much of the manual work that was previously required.
But while Li & Fung’s payment process had been automated and made highly efficient, its trade financing activity was largely manual. “Traditionally, our working capital needs were largely bridged by unsecured credit facilities” notes Denis Savastano, Corporate Treasurer at Li & Fung. “These credit facilities are quite pricey and required substantial manpower to process.”
Together with Citi a solution was developed that leverages the host-to-host connectivity and enables Li & Fung to issue standing trade finance instructions linked to its trade transactions through the ERP system. These instructions then flow straight through to Citi, allowing the bank to approve and process these in accordance with the standing instructions pre-agreed by Li & Fung in a fully automated fashion.
Li & Fung also had to make sure that the solution met its governance requirements. As such, Citi ensured that appropriate authorisation protocols were put in place to guarantee that only key signatories were able to initiate any financing requests.
“Throughout this journey the bank proved to us that they are not simply a provider of solutions, but a trusted business partner.”
From an efficiency perspective, the benefits of this approach are clear. “The cumbersome manual processes and heavy documentary burden that traditionally slowed trade financing was greatly alleviated,” says Savastano. “The fact that the solution is fully automated, end-to-end, means that the risk of human error and fraud has been reduced.”
Substantial cost savings have also been achieved for the group. “We benchmarked the pricing that different banks were offering for the various types of facilities that would cover our working capital requirements,” he says. This innovative and highly customised global solution was implemented within a short timeframe of three months. “Given the tight deadline for the project it was vital for there to be close collaboration between ourselves and Citi for it to be successful,” notes Savastano. “Thankfully, Citi already had an intimate understanding of our business and what we are trying to achieve, as well as the trust of key executives within our organisation.”
But what was most crucial for Savastano was Citi’s willingness to go above and beyond to make sure the project was a success. “Throughout this journey the bank proved to us that they are not simply a provider of solutions, but a trusted business partner. They offered excellent project management to make sure that it ran smoothly, as well as sharing their expertise and insights gained from a wealth of experience working on other similar projects at every stage of the process.”
Having achieved these benefits from the import and export trade solution, Savastano and his treasury team at Li & Fung are pleased with the results. “We are always looking at solutions that can benefit the group and its shareholders. And the host-to-host connectivity that exists between ourselves and Citi is a great channel for us to use and we hope to be able to leverage this further in the near future.”