In seeking to generate improved working capital, BAT wanted to achieve straight through processing, automation and the flexibility to be able to release working capital when needed, even to counterparts with whom it had no existing credit relationship. Here’s how the company did it.
British American Tobacco plc (BAT) is a British multinational tobacco company headquartered in London. It is the largest publicly traded tobacco company in the world. BAT has a market-leading position in over 50 countries and operations in around 180 countries. In 2017 is reported revenues £20.3bn.
Factoring in working capital improvement
British American Tobacco (BAT) was seeking to generate improved working capital through a receivables finance solution across its portfolio of customers in multiple regions. The company required a comprehensive solution to help by improving working capital management through a reduction of days sales outstanding (DSO). It also sought secure ‘true sale’ accounting treatment through 100% credit risk transfer. Finally, it wanted to ensure the efficient purchase and reconciliation of receivables in its accounting system.
A key objective was to achieve a fully automated SWIFT enabled end-to-end process using standard SAP functionality. As such BAT required a partner with the expertise not only to evaluate, structure and deliver the programme but the necessary flexibility from a technical perspective to seamlessly integrate to BAT’s systems to support the optimal process.
In June 2017, Deutsche Bank was mandated as BAT’s primary global accounts receivables financing bank – responsible for the financing of receivables across Asia, Western Europe and other emerging markets.
The solution is particularly noteworthy for its ‘buyer pool’ or portfolio approach to financing receivables. This allows Deutsche Bank to finance receivables from counterparts with whom they do not have an existing credit relationship (for example, those located in emerging markets). This is typically a challenge for those running large account receivables programmes.
Furthermore, the platform delivers automated straight through processing. To facilitate this, BAT and Deutsche Bank were able to leverage the existing cash management platforms and SWIFT connectivity, providing an efficient end-to end automated process across all markets.
“We are absolutely delighted to win an Adam Smith Award, it is fantastic recognition for the efforts of a truly cross-functional team involved in delivering a demanding and technically challenging project in such a short timescale.”
Philip Stewart, Global Head of Cash and Banking, British American Tobacco
Best practice and innovation
The underlying receivables are from a broad portfolio/buyer pool of customers across all regions, as opposed to selective individual customers. However, while built on a broad portfolio of customers, financing is still based on a ‘true sale’ agreement – helping to secure a long-term working capital enhancement.
From the moment the receivables file is generated and sent to the Deutsche Bank platform, until the point of maturity (at the point funds are collected), processes are automated and capable of STP with automated receipt and reconciliation applied. This helps reduce – and even eliminate – the administrative burden on BAT regarding the management of receivables, while also ensuring a standardised process across all BAT end-markets. It should also be pointed out that the solution was delivered in a very short time-frame, within six months of the initial mandate.
“We are absolutely delighted to win an Adam Smith Award, it is fantastic recognition for the efforts of a truly cross-functional team involved in delivering a demanding and technically challenging project in such a short timescale,” Philip Stewart, Global Head of Cash and Banking, British American Tobacco.
The solution provides BAT with the flexibility required to be able to release working capital when needed.
Utilising SAP functionality from the point at which the receivable file is generated, the solution is automated and fully capable of STP.
The solution offers BAT’s multiple end-markets the opportunity to use their debtor books to generate working capital.
Processes in multiple end-markets are standardised and incorporate full reporting functionality.
Key learning points
It is essential to communicate effectively across the business to ensure cross-functional alignment and key stakeholder buy-in from the outset.
It is also important to set out the scope and objectives clearly upfront. This is important in maintaining focus and defining project tasks clearly.
Ensure the bank has adequate and suitably qualified resources available to support an aggressive implementation timescale.
The accounting and legal implications need to be fully assessed on a market by market basis.
Global Head of Cash and Banking
Phil Stewart is Head of Cash and Banking at British American Tobacco, having joined in 2013. He is based in London and is responsible for developing and delivering the group’s cash and banking strategy, taking the treasury lead on working capital optimisation initiatives as well as managing the treasury settlements, in-house cash and bank account management teams that form part of Global Treasury Operations based in Bucharest. Before joining BAT Phil held a number of Assistant Treasurer roles, most recently at EasyJet.