Whilst the programme sees the supplier paying a fee for early settlement, that fee is essentially a credit cost, representing the risk being taken by ING, based on Sodexo’s credit risk profile, not that of the supplier. Where Sodexo’s rating is better than it supplier’s (which in the case of its smaller suppliers, it is), even with the fee, Everts says the programme effectively offers those suppliers working capital finance at a lower cost than they are likely to achieve through their own bi-lateral facilities. What’s more, she says, when a supplier decides to sell its invoice, it can also de-recognise that asset on its books; where the supplier might have limits on Sodexo exposure, it can help the supplier manage those exposures, potentially increasing its sales volumes and reducing the need for credit insurance.
It took about one year from the beginning of the feasibility study to contract execution, says Bossard, treasury taking care of bank relationships and finance, whilst Supply Chain Management assessed the practicability of the implementation.
Once the business case was made, starting in November 2015, Sodexo researched potential providers from both the bank and vendor community. By March 2016, it was drafting RFPs for long-listed candidates.
RFP criteria started a footprint that could match the three core regions that make up Sodexo’s 67-country presence. The successful provider also had to be capable of seamlessly connecting all systems. The firm also wanted to know the number of clients and suppliers each prospective platform was already servicing. The aim, explains Bossard, was not only to explore how far it could leverage already on-boarded suppliers, but also to harvest as much feedback as possible from existing system users “to identify potential constraints”.
On-boarding is a key part of any SCF programme, and Sodexo assessed whether each provider’s on-boarding capabilities could match its supplier base (considering aspects such as local language capabilities, tooling to onboard smaller suppliers, the capacity to offer manual versus auto-trade options, and straightforward KYC checks).
At this stage, Sodexo was also engaging in an internal IT assessment, evaluating the capacity of Sodexo’s ERP to provide the necessary approved invoice data to the SCF portal. The firm then had to decide on a secure data exchange method with the SCF providers (it opted for a mix of manual uploads and secure FTP transfers, depending on buying-entity status).
Having short-listed five providers, meetings followed, with the final decision being made in July 2016. Sodexo selected three: ING for Benelux, Russia and Eastern Europe, Citi for North America and Asia, and Santander for Europe and LatAm.
As this stage, it was important to make sure, as part of the legal framework discussions, that “all trade payables would remain trade payables”, says Bossard. Discussion with Sodexo’s auditors was essential to ensure contracts permitted the right accounting treatment, avoiding re-classification of trade payables as financial debt.
With Sodexo board approval coming through in September 2016, the programme could get underway, onboarding the different suppliers and country operations.
Making it work
So far with ING, Sodexo’s Eastern Europe programme has reached nine countries, with invoices traded covering six different currencies and a yearly spend of between €100 to €200m, principally from its supplier bases of distribution, staffing and logistics companies. This roll-out has provided a number of lessons to date, says Bossard.
It was apparent that each supplier could have different reasons for joining – working capital improvements, reduced financing costs, or credit exposure management, for example. Strong commercial negotiations are therefore required at the on-boarding stage, she says, noting that it may be necessary to adjust the negotiation strategy accordingly.
For Sodexo’s planned global roll-out, even with a contract framework in place, the Sodexo team knew there would still be a need for country-specific elements to tackle. In certain regions, such as LatAm, this even extended to country-by-country requirements.
In practical terms, an SCF roll-out usually seeks quick wins with bigger suppliers. With Sodexo’s large cast of smaller suppliers, it knew it had to spend a lot of time with these to gain what some might see as insignificant results. “If your target is only cash flow, you will find the limits quickly,” Bossard warns. “But our plan was to secure our supply chain, so it made sense to work also with the smaller suppliers.”
To this end, it was important for Sodexo to establish a strong reporting regime, she adds. Whilst this helps measure and understand cash flow improvements, it is also useful to track supplier feedback as it helps further improve the SCF experience for all stakeholders.
Finally, Bossard urges all prospective SCF users to recognise that it takes time and effort to do well. “It means collecting a lot of data to be sure that it will work for you,” she explains. “And it really needs lots of thinking and planning.” However, she is convinced that the results for Sodexo and its suppliers justify the effort. After all, she adds, “this is a long-term commitment”.