From the November 2007 issue of Treasury & Risk magazine

Silver Award Winner for Working Capital Management

For personal computer maker Gateway, fixing a working capital problem wasn't just a headache--it was critical to its turnaround. The company had gone through rough times between 2000 and 2004, but the acquisition of eMachines in 2004 put Gateway computers into big-box retailers like Best Buy and Wal-Mart. By 2006, with roughly 6% of the U.S. PC market, things were looking up.

The good times were short-lived. A critical supplier had been factoring its Gateway receivables through GMAC Financial Services, which in the fall of 2006 decided to pull back on its unsecured receivables factoring on Gateway products, given the computer maker's eroding cash position--down to $400 million by the end of 2006 from $1.1 billion at the end of 2003. To maintain its supplier, Gateway would have to utilize a much bigger chunk of its receivables-backed credit line--too much given dips in PC buying in anticipation of the Microsoft Vista launch. Making matters worse, Gateway introduced a new enterprise resource planning (ERP) system in January 2007, leading to delays in customer invoicing and a diminished cash position.

Treasurer Craig Call?(C) and his team worked out a creative solution--get suppliers to buy credit puts instead of factoring. The put offered superior credit protection and guaranteed the supplier face value in a bankruptcy. Gateway got other suppliers on board as well. By bridging the liquidity gap, Gateway got through its working capital crunch and, by late spring of 2007, cash was trending upward. "That allowed us to get new products to market, which helped our turnaround, and probably made us even more attractive to Acer," says Call?(C), referring to the Taiwanese company that recently bought Gateway. "The experience highlighted the need to take supply chain finance to the next level. Getting departments to understand how their actions affected working capital enabled us to generate more sales."


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