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.
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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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.
The recognition BPI receives from this prestigious award is a testament to us and our strategic trading partners relationships. Partnerships are vital in today's business environment, change is constant and we need to have progressive views, with corresponding actions, finding solutions that will work for both the customer as well as the seller or service provider. This is an example of how we, together with our trading partners, our lead bank, and our employees developed a solution that was a win win for all concerned. We have and continue to use this success with our trading partners as an example of how we work together to find solutions that benefit both the buyer and the seller. We practice and promote “ONE TEAM ONE RESULT”.
The total programme value grew from approximately US$3m to US$23m in just six months. BPI and the suppliers who adopted the programme have been able to improve ROIC, EBITDA and EPS.
During the first phase of the project, which focused on incremental extension of payment terms to 180 days, BPIs global AP nearly doubled to US$98m by the end of 2016. During the second phase, terms were extended to 270 days and by the end of 2017, AP reached US$144m.
The programme allows suppliers to be paid faster – typically in a 15 to 20-day period. It also gives them more control over working capital, as they can pick which invoices will be paid first. Because BPI is a private enterprise, many suppliers carried receivable insurance due to the lack of public information available on the company. The programme means suppliers now no longer need to carry receivable insurance.
For BPI, one of the key advantages of the programme has been the ability to generate much needed cash, which has enabled the company to make significant acquisitions to support a global growth strategy, and to increase dividends to shareholders.
The project has been a success for several reasons, including the cross-functional support that was garnered from the C-suite through to treasury, accounts payable and accounts receivables, IT, and the sales organisation. Legal also played a vital role in this global programme, ensuring that communications with suppliers remained compliant with local regulations. By bringing all stakeholders together, BPI was able to leverage expertise on different parts of the cash conversion cycle and look at working capital holistically across the company.
AP terms extended to 270 days and, by the end of 2017, were at US$144m.
Suppliers paid faster – typically in 15 to 20 days.
Suppliers no longer need to carry receivable insurance.
BPI and suppliers adopting the programme have improved ROIC, EBITDA and EPS.
BPI able to look at working capital management holistically.
Cash generation allows BPI to make significant acquisitions to support global growth, and to increase dividends to shareholders.
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