At the height of the economic crisis, it was critical for Philips’ suppliers to have access to funding to ensure the continuity of supplies to the company, thereby reducing Philips’ risk exposure. The company therefore launched a supplier financing programme, which presented an opportunity for Philips to address its working capital needs at the same time.

Through this programme, Philips is able to extend its payment terms in such a way that it actually benefits the company’s suppliers as well. Whilst the initial venture was in Europe, Philips is already rolling out the programme globally. With scale in mind, automation of the communication channels was key, whereby the company wanted to maintain a single interface through its central payment factory for accounts payable.

As Reinoud Mangelmans, Global Head of Business Finance, Philips, says, “We wanted a partner who could deliver a global solution at competitive terms and on whom we could rely at all times, both because of their experience and track record of on-boarding a diverse portfolio of suppliers across regions and their appetite to grow the programme with us. We therefore selected Citi as our supply chain finance banking partner in 2009 to provide financing to our global suppliers selling to our European purchasing subsidiaries.”

“This Award is a great recognition for the entire Philips team working on supplier financing, demonstrating Philips’ focus on working capital management and risk management.”

Citi’s supply chain solution, which is enabled through a web-based application, allows Philips to upload approved invoices for their suppliers in multiple currencies through a host-to-host connection. The suppliers can elect to discount their receivables, giving Philips’ suppliers automated or optional early payment flexibility. No Citi accounts needed to be opened by suppliers under the programme.

The supplier financing solution has demonstrated best practice and innovation in delivering a seamless solution in the following key areas:

• Liquidity at the click of a button.

  Suppliers are able to receive financing for their receivables the same, or at latest, the next business day from when Philips uploads payments into the platform.

• Asia linkage.

  The existing European technical solution was enhanced by linking with the local Asia SCF product processor to reach Philips’ global suppliers. The Asian suppliers benefited from a local feel to the solution as they only engaged with the local Citi branch. Philips on the other hand achieved a single window interface for all their purchases.

• Supplier selection.

  Citi and Philips worked together to select suppliers that would create maximum value and cash flow benefits for Philips and its suppliers. This resulted in gaining acceptance from some of their global suppliers, which took the facility utilisation to 100% within three months of launching the programme.

• Standardisation of payments interface.

  Although the supplier financing programme introduces a new process operationally, Philips and Citi worked closely together to integrate the SCF process into Philips treasury’s existing way of working, thereby keeping Philips’ central payment factory intact and yet creating a fully automated process for delivering, approving and paying the invoices.

“A successful SCF programme relies on various elements of execution, good communications and close cooperation between all the stakeholders both internally (treasury, purchasing, IT and legal) and externally (banking partner, the bank’s IT team and last, but not least, our suppliers),” says Mangelmans.