Receivables did not end up suffering much, which Brigham attributes to the Covid relief provided by governments around the world. Nevertheless, he adds, "the pandemic made us realize some things we hadn't considered before. One was that we were too dependent on certain partners. We saw that our competitors were using multiple sources of financing, including the public debt market." GPC had not previously issued bonds; the executive leadership team decided it was time to do so.

"We went out with our executive leadership team and talked to Moody's, S&P, and Fitch," Brigham says. "We got our credit ratings, which gave us access to an entirely new market for financing."

At the same time, GPC needed to make improvements to its working capital management to tap into additional liquidity and give the company's North American, European, and Australasian divisions maximum financial flexibility. However, Brigham and his colleagues were clear from the start that squeezing suppliers by extending payment terms was not the answer.

Many of GPC's suppliers were facing their own challenges. After all, the pause in consumer spending hit businesses up and down automotive supply chains. Some key suppliers did not have access to affordable capital, even as cash flows were suffering in the pandemic's early days. "We look at every supplier relationship as a partnership; we want people to be proud they're working with us," Brigham says. "Some suppliers offered extended terms to help our business, so we wanted to be able to offer them attractive financing with our banking partners in exchange."

Treasury launched a project team focused on liquidity and working capital issues. They evaluated different strategies for generating global liquidity while strengthening the financial positions of both GPC and its suppliers. As they came up with solutions, they needed to align an array of internal stakeholders, including executives, technical accounting, financial services, business process improvement, accounts payable (A/P), accounts receivable (A/R), and IT teams, as well external auditors.

The group identified several key objectives. One was to proactively head off any possible debt-covenant issues that might arise as a result of the pandemic disruption. "No one knew how long Covid would last," Brigham says. "We didn't know whether the covenants on our term debt would be triggered. So we amended our existing credit facilities, and shortly after we went to the public debt market, we paid off our variable-rate term loan."

GPC also developed an A/R sales program. "This is an idea we've had for many years," Brigham says. "A/R is one of our largest assets. We kept procrastinating, but then Covid hit, and we decided the time was right to move forward with this initiative."

Now GPC sells the accounts receivable from both its automotive and industrial parts businesses to  an unaffiliated bank. The program doesn't change anything for the customers; they send their payments to the same lockbox, and GPC handles cash application. But the A/R is no longer on GPC's balance sheet, which means the company has access to much more liquidity. The value of sold receivables in the program has grown from US$500 million in early 2020 to $1 billion by January of this year.

On the payables side, Brigham says, "our banking partners' supply-chain finance programs emerged as a great way to allow the suppliers granting us extended payment terms to take advantage of our credit rating. We want the best terms we can get—but we don't want that to be a financial burden on the supplier."

Some of GPC's banking partners have voluntary supply-chain finance programs that enable suppliers to sell their receivables from the company to certain banks on a non-recourse basis. The project team wanted to expand the benefits of these programs by growing participation. "A lot of banks were also feeling the impact during Covid," Brigham says. "They had concerns about having too much exposure to a single client or to supply-chain finance programs. So, as we looked at how to grow our program, it made sense to expand our funding-partner relationships in North America, Europe, and the Australia and New Zealand market."

Bringing in funding partners in every geographic market would help ensure that GPC's suppliers around the world could access the benefits of early payment. Before making the case to lenders in the different regions, though, the project team often needed to introduce them to the company. "To start, we had to give them a history of our business, educate them on our strategy, and get them comfortable with our industry and with GPC," Brigham says.

In addition to expanding the geographic scope of available funding, "diversifying our banking partner base opens us up to new opportunities," Brigham points out. "Having multiple lenders drives competition. Our banking partners know that we have other banks bringing us both market intelligence and great ideas. When we want to do business in a new region, we have access to a network of banking partners that we can call on."

See also:

• Taking Supply-Chain Finance Global
• Finding the Capital to Fund Corporate Growth
• And the on-demand webcast celebrating our three winning projects: How Award Winners Optimized Working Capital and Payments

The project team also expanded suppliers' platform options, ending up with 28 bank partners participating in five different supply-chain finance programs. Brigham explains: "The primary reason we have multiple platforms is to give our suppliers options."

The interest rates at which suppliers discount their receivables (GPC's payables) vary a bit across the five platforms. "In most cases, the supply-chain finance programs' pricing is better than what the supplier would be able to get in the capital markets, whether through their revolving credit facility, a private placement, or public debt markets," Brigham says. "Even more important, when vendors use the supply-chain finance program to accelerate receivables, they're not using their own capital to give us extended terms. That leaves their credit facility available for them to run their business."

All in all, Brigham says, "our expanded supply-chain finance program is truly a win-win. Genuine Parts Company generated a tremendous cash flow benefit to the business through extended payment terms, and our suppliers can use our strong balance sheet to finance their operations."

GPC's customer base represents a third winner in the working capital equation. Because both GPC and its suppliers can continue to adequately fund their businesses, "our customers can put our auto parts into their vehicles to get them back up and running. And on the industrial side, we're helping manufacturers—large and small—keep their factories running," Brigham concludes. So, ultimately, the project team achieved a working capital win-win-win.