From the November 2010 issue of Treasury & Risk magazine

Bronze AHA Winner in Working Capital

When the economy tanked in 2008, Cisco Systems set out to aid its key channel partners and prevent the permanent damage to its intricate supply chain that would occur if key partners cut back orders or went out of business. Most of Cisco's sales are made through distributors, system integrators and resellers.

The mission, dubbed Navigate to Accelerate, extended customer payment terms from 30 to 90 days. It used three lenders--GE Commercial Distribution Finance, Castle Pines Capital and Deutsche Bank--to fund the difference, keeping Cisco's AR terms at 30 days, and optimizing working capital across the entire value chain.

That meant liquidity for Cisco customers and a transfer of $700 million of credit risk to lenders. Cisco retained a $15 million first-loss guarantee and paid interest on the 60 days of lender credit. Because the lenders pay Cisco a discounted amount after 30 days, its days sales outstanding, which had been running between 35 and 50 days and deteriorating, fell to an even 30 days for participating partners, reports Maryann Von Seggern, director of Cisco Capital. Credit risk above that $15 million is transferred. Sales are final and lenders do not enter the title chain.

The solution is highly automated: invoices are fed automatically from Cisco's ERP system to the bank group's servicing platform every 15 minutes. The program steers scarce bank financing to Cisco's supply chain rather than its competitors', notes Roger Biscay, Cisco's vice president and treasurer. Cisco needed 2% incremental sales growth from participants to cover the cost of the program. It got over 20%. The CFO of one reseller called the program "the most useful support tool ever delivered by Cisco."

"Navigate to Accelerate successfully maintained Cisco's sales momentum and margins in a very difficult market environment," Biscay notes. "The program also mitigated the impact of extended payment terms on both our days sales outstanding and credit risk exposures, and built invaluable loyalty among our channel partners."

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