Treasury Practice

Problem Solved: Indrajit Sengupta, GlaxoSmithKline Consumer Healthcare Ltd

Published: Mar 2008

In 2007, GSKCH decided that there was scope for improvements to be made to the way in which collections were managed.

Indrajit Sengupta

General Manager Finance

GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH), which was established in 1958, is an associate of GlaxoSmithKline plc. of the UK, a global science based healthcare company. GSKCH has continually benefited from the technical and marketing inputs that have been available as a consequence of this association. GSKCH is the largest player in the health food drinks industry in India. The company, with its manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total workforce of about 2,700 people.

GSKCH has a strong marketing and distribution network in India, comprising over 1,800 wholesalers and direct coverage of over 450,000 retail outlets. Its flagship product, Horlicks, has been a widely regarded and highly respected brand for over 100 years. The company also manufactures and markets Boost, Viva and Maltova and in addition markets and distributes a number of products in diverse categories, which include prominent household names such as Eno, Crocin and Iodex.

Problem…

GSKCH had a number of distributors who were paying for goods using demand drafts. Demand drafts are paper based and consequently the system was associated with inefficiencies. GSKCH would receive signed demand drafts from its customers and would then enter the data into its ERP system. An invoice would then be generated based on the customer’s order. This arrangement required a considerable amount of manual work and reconciliation.

A decision was therefore taken to move to a more automated process. “We decided to move to full electronic banking,” explains Indrajit Sengupta, GSKCH’s Finance Manager. “We wanted to improve the efficiency and speed of the system, incorporating all our vendors, customers and business partners into the process.” By receiving funds through India’s RTGS (Real Time Gross Settlement) or NEFT (National Electronic Funds Transfer) systems, GSKCH could significantly speed up the collection process. However, if all the funds were to be received electronically from more than 400 distributors, a time-consuming reconciliation process would be needed in order to link up the receipts of funds with each distributor.

…Solved

GSKCH, in partnership with Deutsche Bank, led an initiative to centralise its entire payment and collection process three years ago. Before that, collections had been managed from four different Regional Offices, and payments were managed from 14 locations. This enabled funds to be swept, at the end of each day, into one main bank account held at the corporate office, significantly reducing both the number of bank accounts that GSKCH was holding and the idle funds held by the company.

Once the decision had been made to receive customers’ payments electronically, GSKCH discussed the question of reconciliation with its partner bank. “We had a nine hour meeting with them at their headquarters in Mumbai,” recalls Sengupta. “During that meeting we came to the concept of Payer ID, whereby our partner bank would assign a Payer ID to each of our customers.” The proposed solution would resolve the reconciliation issue by assigning an identification code to each of the distributors, which could then be used to match up each payment with the customer’s details.

Once the Payer ID solution had been developed, GSKCH began to migrate its distributors over to the new system. In order to do this, GSKCH provided its partner bank with each distributor’s details, enabling the Bank to issue a Payer ID for each customer, which GSKCH then communicated to the customer. Thereafter, when the customer made a payment, the funds were transferred electronically using the Payer ID code, which enabled the Bank to reconcile the payment with its originator. Consequently GSKCH now receives both the funds and the details of the transaction straight away.

Sengupta is enthusiastic about the new system and points out that GSKCH’s distributors have benefited from the arrangement. The faster reconciliation process enables GSKCH to dispatch goods more rapidly, a process which had previously taken up to six days due to the time taken to reconcile the demand drafts. “They are now getting a much faster turnaround time, relieving the pressure on their working capital,” Sengupta explains. “And as far as GSK is concerned we now have a very good real-time online system – it is much easier for us to monitor our collections.” He is also appreciative of the service that the partner has provided in developing the Payer ID solution to meet GSKCH’s needs. “The bank has been very supportive in rolling out this concept and making it a reality.”

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