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Best Working Capital Management Solution Highly Commended: Cipla

Published: Jan 2020

 

Photo of Abhay Adukia and Saumil Chogle, Cipla.

Saumil Chogle

Senior Manager of Finance

Mumbai, India

Founded in 1935, Cipla is a leading multinational pharmaceutical and biotechnology company headquartered in Mumbai, India. Cipla primarily develops medicines to treat respiratory, cardiovascular disease, arthritis, diabetes and other medical conditions. Employing over 22,000 people across the globe, the company’s revenue was US$3.5bn between 2017-18.

Holistic working capital management accelerates cash conversion and unlocks value

The challenge

At the heart of Cipla’s philosophy is a commitment to innovation in order to outperform its competitors and deliver on shareholder expectations. This commitment spans its entire business including its treasury team, which wanted to find ways to improve overall working capital performance.

Cipla’s treasury wanted to:

  • Accelerate cash conversion to improve its working capital metrics.
  • Enhance its short-term investment strategy to gain higher returns while mitigating risk.
  • Unlock value within its accounts payable (AP) using a more effective alternative to vendor finance.
  • Reduce financial supply chain risk to protect shareholder value.

The solution

While many treasury teams try to solve these challenges individually, the team at Cipla saw an opportunity to achieve success with all working capital objectives by leveraging a single technology solution through an early payment platform provided by financial technology company C2FO.

This solution presented Cipla with a unique option that created an investment market for its AP, while also presenting a cash acceleration option for its accounts receivable (AR). As a result, Cipla experienced an 800bps improvement in cash yield and used this non-debt solution to help deliver on quarter-end performance metrics.

Furthermore, Cipla eliminated payment delays and improved its internal processes to speed up the automatic uploading of approved invoices to the financial technology company.

Best practice and innovation

Innovation occurs when an organisation is willing to rethink traditional tools and approaches as well as organisational silos. It was only by considering a fintech, not as traditional finance but as a complementary working capital solution, that Cipla was able to create value in its AP and AR.

For Cipla, its treasury team is the first line of defence when it comes to financial risk, and is open to leveraging new technologies for competitive advantage. It is this type of thinking and innovation that has led to twice the return of its other cash investments.

Holistic working capital management played its part too. The team used a single programme to build out a more holistic working capital strategy and eliminate vendor payment delays. The existing vendor finance programme supported most of its Tier 1 vendors and preserved the day’s payable outstanding (DPO) metric, but Cipla was not receiving any other financial gain.

By adding the platform as another method to support its vendors, the entire AP could be leveraged to preserve DPO with one solution and gain incremental income through the other.

There was real strategic thinking when it came to AR. Realising the value that the platform brought to Cipla’s vendors in immediate cash flow and DSO improvement, the company began using the platform to accelerate its own AR with customers who had already adopted the technology.

As a debt-free mechanism to ascertain cash to achieve its quarter-end reporting metrics, the technology became a frequent tool used in Cipla’s cash management approach.

Key benefits

  • 81% vendor adoption of the early payment programme.
  • 72% vendor repeat participation in the early payment programme.
  • Improved internal invoice approval process to realise full benefits of the technology platform.
  • Eliminated late vendor payments.
  • Received cash flow from customers through the platform as much as 53 days early.
  • A debt-free and low-cost option to manage liquidity needs at various points in time.
  • Incremental 800bps return on invested cash.

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