Photo of Lucas Chew Yee Lim, UOB, Dawn Hoe and Gabriel Kok, Carlsberg Marketing Sdn Bhd.
In order to gain market share, distributors have to be equipped with strong marketing strategy and support, steady infrastructure to drive efficiency, and adequate working capital. It is critical for Carlsberg to manage the risks associated with commercial growth and the company wanted to extend its support to most of its smallmedium enterprises (SMEs) distributors. It sought an alternative end-to-end financing for its eco system and found a two-stage end-to-end supply chain solution using account receivables purchase and invoice financing.
Lim Chee Keat
Chief Financial Officer
Shah Alam, Malaysia
Established in 1969, Carlsberg Brewery Malaysia Berhad (Carlsberg Malaysia Group) is part of the Carlsberg A/S (Carlsberg Group), one of the world’s leading brewers with strong market positions across Asia and Europe. Besides its regional presence in Malaysia and Singapore, Carlsberg Malaysia Group also exports to countries like Thailand, Taiwan, Hong Kong and Laos.
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How to support your own growth and that of your smaller distributors while managing risk
Carlsberg Marketing Sdn Bhd (Carlsberg Marketing) is the wholly-owned subsidiary of Carlsberg Brewery Malaysia. Its growth is contingent on sales via distributors. In order to gain market share, distributors have to be equipped with strong marketing strategy and support, steady infrastructure to drive efficiency, and adequate working capital. It is critical for Carlsberg to manage the risks associated with commercial growth and it wanted to extend its support to most of its small-medium enterprises (SMEs) distributors.
For these SME distributors, getting access to working capital at a favourable rate is a continuous challenge. Not getting the facility in a timely manner can be a hindrance to its business, especially in the FMCG industry, where turnover is fast, and it is essential to take advantage of seasonal periods, where sales volume is high. Carlsberg Marketing also wanted to reduce its days sales outstanding (DSO) position from its normal credit terms to its distributors. With lower DSO, the company’s liquidity would be enhanced, working capital requirement would be reduced and risk would be mitigated. Shareholders’ value would also improve.
Carlsberg Marketing approached United Overseas Bank (Malaysia) (UOBM) to provide an alternative end-to-end financing for its eco system, with Carlsberg Marketing being the anchor, and its distributors as spokes. UOBM proposed the Distributor Financing Programme (DFP), consisting of two stages: Stage 1 is supported by account receivables purchase (ARP); Stage 2 by invoice financing (IF).
Under ARP, Carlsberg Marketing sells its receivables to UOBM after selling goods to the distributor on an agreed credit term. UOBM purchases the receivables at the net amount (excluding credit note) for up to the agreed credit term days from the transaction submission date. The net proceeds are then credited into Carlsberg Marketing’s account maintained with UOBM. The credit note amount will be credited into the distributor’s non-checking account (NCA) pending settlement upon the receivable due date.
The credit term only covers the distributor inventory period, when typical credit terms given to the buyers are generally 30-90 days. Distributors would need additional working capital to cover their sales cycle. Hence, UOBM proposed to provide them with IF.
With IF, distributors do not need to provide additional invoices, reducing the paperwork and administrative fee for distributors. The IF drawdown instruction is typically furnished one to two days prior to the ARP due date, for the financing extension. Distributors may choose to instruct UOBM to debit their account for settlement of ARP without drawing its IF facility.
UOBM uses the monies in the NCA (credit note amount) to partially settle the ARP, and the residual amount is drawn against the IF to retire the ARP. In the event the distributor does not wish to drawdown the IF, UOBM will debit the distributor’s account for the residual amount to retire the ARP. To enable the ease of debiting the distributor’s account, distributors can channel their collection proceeds to the account maintained with UOBM to facilitate the debit on the IF due date.
Best practice and innovation
The FSCM solution is tailored to Carlsberg Marketing’s business workflow, and it accommodates each of the distributors’ working capital needs. The structure considers the entire end-to-end supply chain. UOBM also considers each distributor’s dependency on Carlsberg products with the need of additional working capital for their business growth.
For Carlsberg Marketing
Access to competitive working capital.
Swift credit assessment, approval and on-boarding of distributors.
Strengthened relationship with Carlsberg Marketing.
Favourable pricing and terms.