GE Capital Solutions: Funds that Flow - Geoff Healey
More than ever before, companies are seeking to improve the performance of their financial supply chain. For service providers with a healthy credit rating and a strong revenue flow there is an opportunity to play a key role in the flow of funds, and corporate giant GE Capital Solutions is among the first to step into this role.
Many corporates have now grasped the concept of financial supply chain management, recognising that the flow of funds is just as important as the flows of goods and services. There are, however, many challenges in attempting to optimise the financial supply chain.
There is, therefore, a great opportunity for financing services that address credit risk, seasonal market fluctuations, mismatched payments terms and the many other potential gaps in the financial supplier chain between manufacturer and dealer.
'Inventory finance is relatively new in Europe, especially compared to the US, but clearly companies do understand it more. Financial supply chain optimisation is no longer restricted to a few companies in Europe,' says Geoff Healey, European commercial director for GE Capital Solutions’ Commercial Distribution Finance (CDF).
CDF provides tailored financing and servicing structures for manufacturers and dealers in six key industry verticals (marine, automotive and motorcycles, IT/electronics, industrial and construction, recreational vehicles and consumer durables), enabling manufacturers and their dealers to reduce risk and improve the flow of funds through the financial supply chain.
The power of CDF lies in the detailed sector knowledge at GE (one of the world’s most successful companies), particularly its strong industry heritage, its financial strength and high credit rating.
'If you sell products through a dealer network it makes life easier if the CFO can guarantee payment on a defined date. Dealers get enough credit to meet their daily orders. The opportunity for bad debt is outsourced to a third party,' remarks Healey. 'For CFOs selling crossborder in many currencies, it would help if all payments were backed by a AAA-rated company like GE, where individuals know the markets very well.'
The growth of CDF, which has seen a 40% rise in the volume of sales year-on-year, spread across all five industry verticals, shows the growing desire for bespoke financing services.
Healey feels that the success of CDF stems from its specific sector focus, commenting that the intention is to be 'an inch wide and a mile deep.'
WHAT'S IN IT FOR THE CFO?
There is a need for close relationships between all partners in the financial supply chain, so GE has gone so far as to embed people in client organisations to fully understand their needs, and the benefits have accrued quickly.
Healey points to an example in the marine sector, where the combination of close relationships and sectorspecific knowledge enable CDF to deliver clear advantage. A boat-maker needs the manufacturing process to be continuous, but the dealers who are its customers only take delivery at the start of the selling season in March or April.
'We give dealers the credit facilities to purchase products. The manufacturers have the certainty they need to continue production, enough for them to be willing to subsidise the financing costs.
The dealer can take and hold the product earlier because manufacturers bear the cost in the knowledge that GE will pay the invoice immediately, allowing them to invest in more raw materials,' says Healey.
A further example is the highly globalised IT industry, where suppliers sell into markets where standard 30-day payment terms do not apply.
'In the Middle East, for instance, you find specific requirements of 90 or 120 days,' comments Andrew Stafferton, GE Capital Solution’s marketing leader for CDF. 'Manufacturers don’t want that risk, so we add liquidity by making the bridge between the terms. We take on the risk while guaranteeing payment on day 30. We tie together the parts of the transaction from manufacturer to dealer to end-purchaser.'
Though still relatively new to Europe, the appetite for services like CDF is already growing fast, as the tangible benefits are plain to see.