The partner bank in this solution structured a RMB200m uncommitted supplier financing purchase programme extended to Gamesa to discount its payables owed to various suppliers. The structure sees the bank purchase 100% of the invoices issued by the suppliers to Gamesa without recourse to the suppliers in case of default by Gamesa.
 

Photo of Loic Senechal, BNP Paribas and William Galliard, Gamesa Wind (Tianjin) Co Ltd.

Supporting strategic suppliers

The challenge

Tianjin-based Gamesa Wind wanted to implement a supplier finance programme so that it could extend the payment terms it has with its suppliers in order to optimise its days payables outstanding (DPO) metrics and overall working capital cycle. In addition, Gamesa Wind wanted to support strategic suppliers by providing them with lower-cost funding based on its own creditworthiness, thus enhancing its commercial relationship whilst having better visibility on procurement prices.

There were some obstacles that stood in the way of the company meeting these objectives, however. Most notably, Gamesa Wind knew that it would be hard to onboard its suppliers, who are based across China and are of different sizes, onto the programme. It also knew that the programme would have an impact on its internal processes, most notably requiring Gamesa Wind to approve invoices in a speedier fashion. Finally, given the cross-functional nature of the programme, coordination and teamwork between the finance, procurement and credit control teams within Gamesa Wind would be crucial.

The solution

Gamesa Wind worked with BNP Paribas to overcome these challenges and meet its objectives. They did this by structuring a RMB200m uncommitted supplier financing purchase programme extended to Gamesa to discount its payables owed to various suppliers. This structure sees the bank purchase 100% of the invoices issued by the suppliers to Gamesa without recourse to the suppliers in case of default by Gamesa.

The underlying receivables are due for the sale of wind power equipment related spare parts and materials. The receivables are denominated in RMB and have original payment terms up to 90 days extended to 180 days in the frame of the programme.

To achieve the cost split, the bank allowed the buyer to pay the partial cost from the discounting, however, the arrangement shall not impact their account payable accounting treatment. There was a tri-party agreement signed by the buyer, the supplier and the bank to carry the extension and the interests splitting.

Best practice and innovation

This innovative solution has been a true win-win for all parties involved. For Gamesa Wind, in particular, it has gone a long way to enhancing processes and creating cost efficiencies across its supply chain.

Indeed, the company has already seen an improvement in its DPO metrics and by leveraging BNP Paribas’ Connexis Supply Chain solution, the entire financing process is dematerialised. This has made it quicker for suppliers to receive a discounted payment after making a request.