Lack of sufficient local working capital facilities was leading to lost export sales for the company. They needed to shorten and accelerate the receivable recovery cycle to work within the same bank facilities and not lose sales.
The company was previously using the high cost INR debt for financing its working capital while it waited for the maturity of export bills. The lack of sufficient foreign currency funding for exports was impacting the bottomline and company was losing sales of customers who required extended credit periods.
A Denim fabric exporter based in Surat, India was looking to increase exports beyond its existing markets of Bangladesh, Egypt and Latin America. However despite demand from other markets, the main roadblock in increasing exports was requirement of credit terms from new customers, which its existing bank facility could not support. The customer was providing credit terms 120days to its existing customers and using expensive INR working capital facility to finance the cash cycle. They were facing a massive challenge in managing their working capital cycles and were in need of an accelerated cash flow to manage their growth. Also, the present cost of finance was in local currency and was in double digits.
In the present cycle the company was waiting for the USD negotiated bills to mature and was treating these as receivbales. Against these USD recievables, a local currency working capital was provided with high cost by its local bank in India. The company received 120 days Usance LCs from customers and were drawing down on their INR Overdraft facilities to finance their working capital requirements. This was not only very expensive but also utilized the working capital lines leading to severe shortage of expansion capital to the company.
The company registered with ‘Interlinkages Online’ to arrange for banks that could discount their Usance LCs. This enabled their buyers to still avail credit for a period of 120 days while they got paid at sight without drawing down on the high cost local debt.
Our customer was able to save on average over 3% per annumwhen compared with alternative financing sources
Through Interlinkages Online, the company connected with multiple banks and the financing quotes were arranged within 2-3 working days for all transactions.
Interlinkages Online enabled them to increase production and sales with extra funds at their disposal.
Inititally the customer came to us post LC issuance for which a Reimbursement Authorisation structure was suggested. The customer then requested Interlinkages to accelerate their cash flows even further, post which we guided them to consider a Confirmation and discounting structure.
The Interlinkages Online team was able to guide the client on clauses to be added in the LC prior to issuance to make it discountable. The deal was supported end-to-end which included draft document negotiation with the financing banks and resolving any operational issues with the Issuing Banks.
Interlinkages Online connected the company to a local bank in Bangladesh which had credit appetite on the company's working capital bank. The company was able to provide the guarantee without impacting its project profitability.