Photo of Shrabani Bhattacharjee, PT Indocement Tunggal Prakarsa and Ashutosh Kumar, Standard Chartered.

PT Indocement Tunggal Prakarsa (ITP) needed to improve payment periods and negotiate better credit terms but at the same time ensure minimum compromise to its suppliers’ cash flows. Using Standard Chartered’s fully-automated Vendor PrePay (VPP) solution, ITP is now providing working capital to its suppliers, enabling them to selectively finance their invoices any time before invoice due date, according to their working capital needs and with better interest rates by utilising ITP’s credit rating.

How PT Indocement Tunggal Prakarsa kept its suppliers’ cash flowing

The challenge

Suppliers often needed cash ahead of the invoice due date to fund the purchase of raw materials and operational expenses. At the same time, they wanted the flexibility to choose the invoices to be financed. They had limited access to working capital facilities and typically faced high interest rates for their own banking facilities. They also lacked certainty of payment on due date.

The solution

ITP’s solution came from Standard Chartered and its Vendor PrePay (VPP) offering. Working capital can now be offered to suppliers, enabling the company to selectively finance their invoices to ITP any time before invoice due date, according to its working capital needs – and with better interest rates by utilising ITP’s credit rating.

This fully-automated solution uses host-to-host connectivity between ITP’s ERP and the bank’s online platform, Straight2Bank. Mandatory bank account with SCB, paper-based instrument such as bills of exchange (BoE) and manual submission by suppliers to branch are no longer required. Instead, approved invoices are directly transmitted to Straight2Bank from ITP’s ERP. When payment is successfully made to suppliers as per supplier’s requirement, the system automatically sends MT940 to ITP’s system for its automated reconciliation.

In 2017, ITP suppliers were introduced to this solution and received very positive responses. Based on this experience, in early 2018, a similar programme was replicated for PT Pionirbeton Industri (PBI), a subsidiary of ITP, involved in the ready-mix concrete business. The programme received great enthusiasm from suppliers, especially since its suppliers usually face tight working capital requirements, having to pay raw materials and shipments in cash while receiving payment in 45 – 90 days from PBI. This programme is highly valuable in improving PBI’s competitiveness and in building strong supplier loyalty. The replication of this programme is a clear demonstration of evolving best practice.

Best practice and innovation

VPP is an automated supplier finance solution that allows suppliers to receive payment prior to invoice due date as per their cash flow needs. Invoices are directly sent to Straight2Bank once they are authorised and released from the company’s ERP system through host-to-host connectivity. Once the invoices are received at the bank’s system, suppliers will be able to view these eligible invoices and select the invoices they want for financing. If suppliers don’t make their selection until invoices are due, they will receive the full amount without deduction on the invoice due date.

With smaller suppliers, which typically struggle to obtain financing on their own, a supplier finance solution such as VPP plays a very important role. Not only are suppliers able to obtain access to a reliable source of finance but they are also able to obtain favourable rates.

Key benefits

• Provides a working capital solution for suppliers, with additional benefits for suppliers:
  • Better interest rates compared to suppliers’ own banking facility.
  • No collateral required.
  • Simple documentation.
  • Dedicated team to speed up onboarding (end-to-end takes a maximum of five working days; account opening optional).
  • Option for selective or same-day auto financing to suit working capital gaps.
• Streamlined ITP’s internal process and reduced manual work.
• Improvement in ITP’s credit terms.
• Increased efficiency from the reduction of manual work and streamlined processes.
• Removed human error, due to the re-input process from ERP into bank system.
• Straight through processing drives a quicker turnaround time.
• Round-the-clock channel availability.

Visibility of transactions from automated reports and alerts generated by Straight2Bank Maintains long-term strategic ties with suppliers.