The challenge

As one of the most recognised and established brewers in the world, one of Carlsberg’s key objectives was to support its suppliers (mostly SMEs), by providing access to a lower cost of funds. It also wanted to extend SMEs payable days for improving liquidity, ratios and better balance sheet management.

Carlsberg in India has been growing robustly and realised that providing support to its large number of suppliers (bottlers, packaging materials, raw materials and transporters) is a key ingredient for its growth plans. As such, a solution which could offer lower cost financing to suppliers without adding any additional burden on the balance sheet was needed. This would be a win-win solution for both Carlsberg and the suppliers.

After Carlsberg put out a request for proposal (RFP), ANZ won the contract by offering its payables financing (PF) structure.

Carlsberg then partnered with the bank to develop a customised PF solution which would help not only in achieving these dual objectives, but also educate the suppliers on the features and benefits of the supply chain programme.

The solution

Under the structure, the bank executed a payable service agreement with Carlsberg and the suppliers and onboarded the suppliers into its banking set up by undertaking complete know your customer (KYC) as per regulations.

By providing an automated solution, the bank not only provided operational convenience and transparency but also helped in engaging suppliers across the country through its three-branch network. As a product, PF is in the early stages of development in the Indian market, and more and more financial institutions have now started seeing this as one of the tools of financial inclusion by providing banking services to the entire supply chain ecosystem.

There is still a low level of awareness about this product in the market, especially amongst the supplier community. Moreover, owing to the geographic size of India, the suppliers are spread across the length and breadth of the country. Educating and onboarding them has been a challenging task for many financial institutions. Hence, suppliers are traditionally dependent upon their existing banks for funding (availed at higher cost) to meet their working capital needs.

Best practice and innovation

• Collaborative working to understand Carlsberg’s needs and objectives and be flexible towards changing market and client requirements.
• Providing industry and market insights and advice as to how the PF programme may be beneficial to Carlsberg.
• Carlsberg classified as operational creditor as per Indian Bankruptcy Code.
• Solution is easy and seamless to transact for both Carlsberg and the suppliers.
• Pricing very competitive and feasible for suppliers, so payment days can be extended.

Key benefits

• Extended payable days thereby improving the cash conversion cycle.
• Suppliers are able to access funding at a lower cost by benefitting from Carlsberg’s credit rating. This strengthens Carlsberg’s relationship with suppliers.
• The structure was balance sheet favourable for Carlsberg.
• The solution is automated in nature which saves time and effort and brings in transparency for all stakeholders.
• The supply chain solution developed requires the anchor/Carlsberg to be treated as operational creditor.