Fintech steps in to enhance alternative supply chain finance solution
The challenge
The company’s energy and refinery plant servicing projects range significantly in project value. The challenge faced with these projects is that they create a significant working capital gap. For example, in order for Doosan Babcock to service a refinery, the refinery must shut down, making time of the essence to keep the refinery’s non-operational period to a minimum. Therefore the tight time frames require significant resources to be available and mobilised – these include materials, equipment and personnel. The contractual agreements aim to minimise the working capital gap between outflow and inflow, nonetheless differences in milestones are standard.
Traditional supply chain finance programmes are not a cost-effective option for many of its suppliers, so Doosan Babcock was using its own cash to pay suppliers in advance of customer receipts.
The solution
The company decided to implement a virtual cards solution for supplier payments. This would give it the ability to pay suppliers by their due date – but extend its own out of pocket expenses by as much as 55 days. It also partnered with an experienced fintech, SwipeZoom, to add a layer of innovation that accommodates those suppliers not using credit cards.
Best practice and innovation
The virtual card is a single use tokenised card number that is linked to a real card number. Doosan Babcock Service can either generate a virtual card number for one-off payments or send a single file to its bank of all the payments it wants to make.
For each payment, vendors receive an email with the one-time use virtual card number that includes the invoice number and the amount owed. The virtual card number can be used only against that invoice and for that amount.
The vendor processes the card as they would any card-not-present payment. The transaction then posts to the company’s real card account.
For those suppliers who do not accept credits cards, which is not uncommon in the UAE, Doosan Babcock Service sends transactions to SwipeZoom – an online payment processor – who converts the virtual card transaction into a normal bank transfer.
Key benefits
- A simple and effective supply chain financing tool that required minimal intervention from the company or its suppliers.
- Accelerated implementation turnaround compared to other traditional supply chain financing programmes.
- A zero-cost supply chain finance solution with extended payment terms and up to 55-days float.
- A comprehensive solution that enabled the company to target its whole book of suppliers, regardless of whether they accepted cards or not.
The UAE market is somewhat less mature than others in terms of credit card usage and acceptance. In the past, credit cards were seen primarily as a means for paying for flights, hotels and/or other business expenses. While the concept and perception are beginning to change, there are still many local suppliers who do not accept card payments.
“This virtual card solution is the first of its kind to be implemented in the region, with the added innovation of having the fintech SwipeZoom in the middle of many of the transactions,” explains Jane Sutherland, Finance Director. “The process is efficient between all relevant parties, maintains internal controls and gives added reliability to the effective management of working capital”.
Doosan Babcock Service set out to create a digital solution that worked for both the company and its suppliers, helping to bridge the working capital gaps it was experiencing while ensuring suppliers received their full payment on time.
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