Innovation In Action
For Bamburi Cement
Citi's supplier finance program safeguards the supply chain and optimizes working capital
East and central Africa's largest cement manufacturing company, Bamburi had a tightly managed supply chain. To optimize working capital and reduce borrowing costs, the company paid suppliers on the invoice due date.
The policy had its downsides. Payments were sometimes delayed. Moreover, cash-strapped small and limited-collateral suppliers had to finance their own operations with bank borrowing, causing financial distress and high costs. Ultimately, these additional borrowing costs forced suppliers to raise the price of their services to Bamburi.
Bamburi needed a better way of supplying working capital to key vendors, in order to ensure a continuous supply chain.
The program also aimed to optimize Bamburi's working capital cycle (i.e. stretching the payment period from 15 days for some of the suppliers to 30 days) without increasing cost to its supply chain, and to improve relationships with its suppliers.
Citi proposed an innovative supplier finance solution that was the first of its kind in east Africa. Under the program, Citi paid Bamburi suppliers on their invoice due dates, by drawing on Bamburi's credit facilities.
Citi provides timely, efficient service to ensure the success of the program. Payment instructions received before noon are processed same-day, and instructions received after noon on the next day.
Because Bamburi replaced suppliers' credit risk with its own, financing costs were lower, and supplier loyalty to Bamburi was enhanced. And, by supporting its suppliers, the company can now demand better payment terms and improve working capital efficiency.
The company also benefits from improved cash flow; its days payables increased because final liquidation of supplier finance loans were an average 30 days after the due date of invoices. The increase in days payables enabled Bamburi to enhance credit terms to its distributors, for a competitive advantage.
After a pilot implementation of the supplier finance solution with one Bamburi supplier, Citi added an additional 14 suppliers to the program.
Bamburi estimates an opportunity for cost savings of over USD 200,000 a year, and is considering expanding the program to its Uganda subsidiary.