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Why Cipla signed onto C2FO’s vendor invoice

platform
By Suhas Bhat | Jun 12, 2019

Indian pharmaceutical giant Cipla tells CT about the benefits of using C2FO’s invoice
discounting platform for itself and also its vast supplier base

Supply chain finance in India has undergone a revolution in the past five years.

In 2014, the central bank launched the Trade Receivables Discounting System (TReDs) that has
helped small and medium enterprises list receivables worth ₹24 billion ($345,000) to obtain early
payment from third-party funds.

In the private sector, a number of other financing platforms have also emerged buoyed by a
digitisation drive seeking to offer working capital loans for growing SMEs in the fast-growing
economy.

For Cipla, the second-largest pharmaceutical company by market share in India, it was important to
tie up with a working capital platform that could support is global operations. The company has 49
subsidiaries in 18 countries and increasing overseas revenue accounting for over 69% of its revenue
last year.

CITI CONNECT

Last April, Cipla’s global banking partner, Citi, brought C2FO’s dynamic discounting platform to the
treasury department’s attention, Abhay Adukia, head of treasury at Cipla told CT. Citi is an investor
in C2FO through Citi Ventures, its venture financing arm.

C2FO offers an open marketplace where suppliers can list approved invoices at discounted rates in
order to receive early payment to ease working capital concerns. Buyers, in turn, get some savings
that boost the balance sheet while also reducing days payable outstanding metrics.

“C2FO [provided] additional help on the receivables front where we, as vendors, were able to get our
money in early at a good rate. So they can help us on both sides as well as in our international
operations,” said Adukia.

“This is the same platform which we can expand to our subsidiaries across the globe.”
C2FO earns a cut of the savings that Cipla would accrue when suppliers choose to get paid early at a
discounted rate*.

‘VENDOR DELIGHT’

But for Cipla’s treasury, C2FO’s solution also made sense (over participating in the TReDs platform
or signing up to a bank-led supply chain finance programme) because of the ease of access and the
autonomy that their Indian distributors, or vendors, would maintain. This led to a faster adoption rate
than expected terming it a form of ‘vendor delight’.

Normally, Indian suppliers are not fond of supply chain finance programmes.

“When you think of supply chain finance proposed by banks or financial institutions, vendors are
stuck with the invoices and discount rate agreed at the start of the programme,” said Saumil Chogle,
Cipla’s senior manager of treasury.

“With C2FO, the vendor has the flexibility to choose the discounting rate as well as the invoices, so
he doesn’t feel locked into the programme.”

“For vendors which are logistics vendors or indirect procurement vendors, they need cash during their
tax or statutory payments or month-end, so they get it discounted then.”

Adukia added it was uncertain exactly how much of an impact the dynamic discounting platform had
yet made, as the company’s financials for the current financial year are being tabulated but he
definitely has plans to ramp up the scope of the programme.

“As a strategy, we excluded a few categories like raw material suppliers because our credit terms
were being renegotiated,” Adukia said.

“We did supply chain finance programmes with them where they needed finance because those were
large values and we didn’t want to expose the entire cash through this platform, so we went to the
second or third level suppliers for this programme.”

SME WORKING CAPITAL HIT BY GST

Because of its flexibility and the balance sheet relief during crunch periods, a C2FO executive
remarked during a workshop at CT Week that Indian suppliers had warmed up considerably to the
platform with the firm witnessing rapid adoption by suppliers in the country.

“They chose the right set of corporates which were cash rich and had a shorter working capital cycle,”
Adukia added.

With interest rates for working capital loans generally being higher in India than elsewhere, it makes
sense that suppliers would want to avoid borrowing when possible and take a haircut to obtain early
payments.

Demonetization and the new unified Goods and Services Tax, seeking to simplify and reduce cross-
state discrepancies in tax collection regimes, creating a further hit to working capital at SMEs and
corporates last year.
What makes it more difficult for SMEs to obtain fair interest rates is the highly fragmented nature of
the Indian pharmaceutical industry - thousands of suppliers operate in remote rural locales and don’t
always have good bookkeeping practices.

Source: C2FO

“The access to credit by the mass of smaller SMEs that dominate the Indian business sector is
challenging,” said Anna Jones, managing director at a Melbourne-based Financial Supply China
Strategic Advisory in a recent report published by BCR. “This is because many do not have the
financial statements and information required by a funder to complete its financial due diligence and
KYC and AML checks.”

Business structures further make it difficult to gain necessary information in India. For many banks,
it could take up to six months to onboard suppliers onto a standard supply chain finance programme.

* HSBC was Cipla’s transaction bank for the programme helping them leverage the fintech solution
and the work by the trio led them to win an award by an independent judging panel earlier this year.

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