A win-win solution for extended payments
A supplier financing solution for Lenovo in Asia.
Founded in 1984, Lenovo Group Ltd is a Chinese multinational technology company with headquarters in Beijing, China, designing, developing, manufacturing and selling a wide range of consumer electronics. Lenovo has operations in more than 60 countries and sells its products in over 160 markets. In 2005, Lenovo acquired IBM’s personal computer business. Since then, Lenovo has concluded several strategic acquisitions in various areas to further complement its existing lines of business and enhance its market presence and leadership.
Making the most of financing
Spurred on by the multiple acquisitions, Lenovo looked to improve the Group’s cash flow by extending its Days Payables Outstanding (DPO). As Lenovo’s DPO was approximately a month shorter in comparison to its US-based competitors, there existed a clear opportunity to unlock cash flow benefits.
However, extending payment terms can have a knockon effect across the client’s ecosystem. Without careful planning, it can impact a company’s working capital to the detriment of other parties involved in the large and complex supply chain. In particular, such a move can place supplier relationships in jeopardy and compromise their cash flow. Nevertheless, a well-designed vendor or supplier-focused financing programme can mitigate these risks whilst allowing clients such as Lenovo to utilise supply chain finance to improve its working capital management more effectively.
Keeping suppliers happy
In partnership with DBS, Lenovo set up a supplier finance programme to help suppliers get paid earlier at the cost of a haircut on the invoice. Suppliers are able to leverage on the credit worthiness of Lenovo to obtain off balance sheet financing and confirmation of payment on invoices, which is a cost-effective way to free up their cash flow.
The process is simple: the supplier sends the invoice, which Lenovo then approves for payment on a due date and informs DBS. The bank will then provide a list of confirmed invoices to the suppliers for them to choose which ones they want to finance. When the invoices are due, Lenovo then pays DBS.
Flexibility was a key element of this programme. Suppliers are not pressured by either Lenovo or DBS to discount their invoices. Discounting is dependent on the supplier’s own working capital needs and they are able to decide when it works for them. This flexibility is what makes supply chain finance (SCF) such a valuable tool.
A partnership that works
Lenovo has been very satisfied with the way DBS has worked to ensure the solution meets their specific needs. To cater to Lenovo’s specific requirements for further scalability, DBS enhanced its online capabilities within its IDEAL Supply Chain Finance platform to enable Lenovo to upload, manage invoices and facilitate payments to suppliers seamlessly and effortlessly.
Lenovo’s suppliers can also view the payment statuses in real-time via this online platform. With the positive results experienced, Lenovo is now in the process of expanding the supplier finance programme to cover more suppliers in Asia.
"DBS has been very open, listened to our requirements and made sure the details work...We have therefore achieved our targetsin a timely manner."
Sriladda Chalermkarnjana, Director, Pensions and Commercial Financing, Lenovo