Insight & Analysis

Castrol India’s cash management revolution

Published: Mar 2016

Castrol India sells its products to over 6,000 customers requiring a highly efficient and well-controlled collection process. Here the team outline how they have developed such a system and the benefits they have gained from this project.

India – a county that has traditionally had a strong bias towards paper-based transactions – has been going through some sort of revolution of late. Led by numerous stakeholders including regulators, banks, market participants and mobile companies, the country looks set to establish a best-in-class payments infrastructure, utilising the latest digital technology, to continue to drive India forward.

Yet, it will clearly take time for India to move away from paper-based transactions.

In fact, data from the Bank of International Settlements (BIS) highlights that in 2014 just under 2.2bn transactions were made using cheques, showing the continuing popularity of the cheque as a payment mechanism. This poses a challenge for corporates operating in the country who still have to manage the burden of paper-based transactions and the various risks that come with this.

Castrol’s challenge

This was a particular challenge for Castrol India, which in 2014 collected 76% of its revenues from its more than 6000 customers through paper-based instruments.

“This involved an enormous amount of manual effort and made coordination between various stakeholders like the sales team, credit team, treasury and our customer and bankers, very difficult,” says Yatin Narkar, General Manager – Finance at Castrol India Limited. “There are then of course the risks associated with paper-based transactions, including the risk of unauthorised handling of cheques, manipulation in recording, cheques lost in transit and delay in deposits, to name but a few.”

Considering the above challenges, Castrol India recognised the need to move away from paper-based transactions and launched an ambitious project to move the collections process away from paper onto digital channels.

Oiling the system

When starting the project, the team quickly began to see there were numerous options available to them. But the key objective was to find a solution that was easy to use, customer friendly and one with robust functionality.

“We opted to use Automated Clearing House (ACH) payments, which utilise a fund-pulling mechanism, for our distributors and RTGS payments with predefined receipt layouts for direct customers,” Narkar explains.

With the digital collection channels decided upon, the Castrol team could begin to leverage the new possibilities afforded to them to create a fully automated process, particularly around the ACH payments. Consequently, the Castrol team developed an integration path between its ERP system and that of their banking partner.

Bharat Agrawal, Treasury Manager, Finance at Castrol India says: “There was a huge amount of work that went into this project because it was vital that the integration path had robust security mechanisms in place. We had to decide on the formats we were going to use, and judge the capabilities and limitations of our ERP and the banks systems. There was also need for some customisation on both sides”

The result of all this effort is a fully automated workflow that sees Castrol India’s ERP automatically send all the sales invoices made during the day to the bank’s system, which is able to segregate these based on the customer details and due dates and also consolidate all the invoices due on a particular day.

“Our bank also does the adjustment of the debit and credit notes received from the Castrol India’s ERP and creates daily reports on our invoices and customers allowing the treasury to have full visibility over the process,” Agrawal adds.

Then, a day before the due date, Castrol’s customers receive a notification message detailing that the funds will be pulled from their account. On the due date, the bank pulls the funds and provides credit to the Castrol India bank account on the same day.

“The bank prepares the reverse feed including the requisite receipt details and sends it to the Castrol India ERP, which gets accounted into the Castrol India system and helps in credit release,” explains Agrawal. “This integration works seamlessly from raising sales invoices to collection accounting and helps avoid the manual intervention and assures utmost accuracy in our collections process.”

Reaping the rewards

Within a six month time span, the Castrol India team were reaping the benefits of the solution.

“Eighty three per cent of the company’s revenue is now collected through online channels compared to the nominal amount before the project began,” says Narkar. This has dramatically reduced the manual work required by the various finance teams, provided certainty around the collections process and also significantly mitigated the risk of error or fraud. An impressive 80% sustainable reduction in bank charges has also been achieved.

Of course, for the solution to truly work, Castrol needed their customers to buy-in. “The effort we put in to make this solution as customer friendly as possible really paid off here and currently we have 88% of our distributors on boarded,” Narkar adds. “A key reason for this is the pre and post-debt SMS and email alerts that help distributors to manage and track their fund flow effectively and accurately.”

The aim for the Castrol team is to get 100% buy-in and have all collections move onto electronic channels.

Keys to success

Dramatically transforming your collections process in such a way as Castrol is no easy feat, primarily because the process impacts many stakeholders.

For Rashmi Joshi, Director Finance, Castrol India Limited, the key to completing a successful project is working as a team. “Internal buy-in is critical in a project such as this and it was vital that the project team containing people from treasury, credit and sales worked together towards a single goal,” she says. “Once this is in place then you can begin communicating the benefits to your customers and are well on the way to completing a successful project.”

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).