Photo of Lesley White, Bank of America Merrill Lynch and Dave Sather, Brake Parts Inc LLC.
When BPI tackled working capital management problems stemming from slow collections, its far-reaching factoring solution benefitted suppliers, itself and its shareholders.
Vice President, Global Sourcing
Brake Parts Inc (BPI) is a leading manufacturer and supplier of aftermarket brake system components. The company serves customers through retailers and distributors globally.
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How a global factoring programme took the brakes off BPI’s cash conversion cycle
As an aftermarket supplier, BPI was under constant pressure from retailers, who were pushing out their payables, increasing the days it took BPI to collect cash. This created tremendous working capital management problems for BPI’s treasury team.
Faced with longer payment terms, treasury was under pressure to find a solution to bring its cash conversion cycle back in line without having to borrow to make payments to the company’s suppliers. Closing this gap was crucial but traditional supply chain finance wouldn’t solve the problem.
After years of trying to convince BPI’s supply base to accept incrementally extended payment terms, with mixed success, the team decided to implement a supply chain factoring programme that would be far more attractive to reluctant suppliers.
Bank of America Merrill Lynch (BofAML) worked closely with BPI to roll out a supply chain factoring programme to the company’s supplier base. The solution has allowed suppliers to receive payment early, thereby lessening the impact of the terms extension. BPI has lengthened DPO, while suppliers have shortened DSO.
Initially, a ‘soft-sell’ communications campaign was leveraged to present all the upsides. The on-boarding programme further emphasised how the factoring programme would allow BPI to extend payment terms while still ensuring suppliers had quick access to payments.
The project required setting KPIs for each function, including AP, global sourcing, treasury, sales, collections, operations and inventory managers. From a technology standpoint, software systems between BPI’s AP function and BofAML had to be integrated to ensure success, representing another innovative aspect of the initiative.
The solution was embraced by many suppliers because it brought value to both parties. Suppliers were not averse to contributing to the financial health of BPI for the obvious reason that it was good for their businesses as well, through access to faster payment terms.