Photo of Ashuman Rao, J.P. Morgan, Hooi Chong Ng and Kelvin Chin, LF Logistics.

LF Logistics’ business has grown substantially over the past few years. It has been consistently adapting and pivoting new ways to improve efficiencies, reduce operating costs and free up capital locked within its supply chain. Since its initial rollout in 1Q 2017 in China and Hong Kong, the company’s supply chain finance (SCF) solution has enrolled over 100 suppliers across five markets, enabling LFL to manage over US$80m in invoices, unleashing significant working capital benefits and, at the same time, strengthening relationships with suppliers.

A scalable solution for supply chain finance that covers every base

The challenge

With further upgrades to its warehousing and transportation network in the pipeline, LFL’s finance team wanted to reduce reliance on expensive bank loans to fund new investments, and sought ways to optimise cash, by freeing up working capital tied to its account payables.

With existing payment terms to suppliers ranging from 30 to 60 days, the company found that it could unlock a large proportion of working capital if it lengthened its days payable outstanding (DPO) to over 90 days. However, knowing that suppliers require a regular flow of cash to meet operational needs, getting them to accept longer payment terms would be challenging and could potentially disrupt LFL’s own supply chain.

The solution

LFL partnered with J.P. Morgan to launch its own supply chain finance (SCF) programme and use it as a tool to facilitate payment term extensions among its suppliers in China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand. The programme enables the bank to purchase LFL’s outstanding invoices and offer its suppliers an option to access financing at a discount, before the invoice payment date.

The web-based solution enables LFL to support a broad base of suppliers (including sole proprietary and partnership firms) across multiple locations, currencies and languages.

It provides suppliers with flexibility to choose between automatic, manual and scheduled discount timings so they can decide when they want to be paid, depending on cash flow needs. It also facilitates an automated procurement-to-payment mechanism to optimise and streamline LFL’s end-to-end processes across different ERPs in multiple countries via a single host-to-host connection. The use of electronic invoicing has enabled LFL to significantly reduce payment processing times.

The solution also leverages a consistent platform across geographic locations to support different invoice currencies (CNY, HKD, MYR, SGD, THB, TWD and USD) and language requirements.

Over 100 of LFL’s suppliers have enrolled in the SCF programme, having also accepted an extension in the payments terms. Since the initial pilot launch in Hong Kong, the SCF solution has also gone live in China, Malaysia, Singapore, Taiwan and Thailand with further plans to roll out in India, Japan and Indonesia.

Best practice and innovation

A coordinated approach was established between LFL and J.P. Morgan to carve out a detailed strategy and drive supplier enrolment for the SCF programme. LFL facilitated transparent communications with its suppliers through outreach programmes and events, conference calls and one-to-one meetings to announce its new payment and settlement policies, and introduce suppliers to the SCF programme. LFL worked closely with J.P. Morgan to ensure that the solution could easily be scaled and fitted to meet its existing and future procurement needs in other markets.

Key benefits

• Successfully processed over US$100m in invoices.
• Enhanced the firm’s working capital management and procurement processes through:
  • Improved DPO.
  • Quicker turnaround time for processing of invoices to between seven to ten days from a previous average of four to six weeks.
  • Minimal administrative work, reduced error rates, improved processing times.
  • Enhances security of invoice file transfers.
  • Standardises onboarding and documentation for all suppliers.
  • Scalable solution to include other markets and currencies.
• Improved LFL’s relationships with its suppliers.