Category: Manufacturing & Industrial
Highly Commended: Haier
Summing up: A supply chain finance programme that demonstrated how distributor finance can be added on to an existing platform and used to keep a corporate’s distributor network in business during a time of crisis.
What the judges said: “The multi-bank programme structure helps keep financing costs at competitive levels and also highlighted this as a viable option for distributor financing programmes.”
- Distributor finance provision helped the recovery of Haier’s domestic franchise following the fallout of the Covid-19 crisis
- In 2020, 1,928 distributors were assigned credit lines, with 1,300 distributors making use of the service.
- Up until the end of August, the accumulative finance volume reached 2.93 billion renminbi ($443.2 million).
The Chinese electronics and home appliances producer Haier launched its distributor finance programme at the end of March, in the middle of the global Covid-19 crisis.
China’s economy had already been shut down since January, with all offline business suspended, including Haier’s franchise distribution channel which accounts for 40 per cent of the multinational’s domestic revenue.
Distributors faced a lack of liquidity from a slump in demand, and Haier wanted to ensure they were in a position where they can restart their businesses as lockdown restrictions ease and demand resumes.
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Haier created an offering that allowed banks to finance distributors directly, against the collateral of the distributors’ inventory held in custody in Haier warehouses.
The distributor financing programme built upon the existing SCF platform set up in 2014 which already offers working capital finance solutions to companies within the Haier ecosystem.
The distributor finance platform is fully digitised with everything processed online. Via the platform, a distributor can select a bank to sign the finance agreement, which triggers a financing process along with a purchase order to Haier.
Haier receives payment from the bank, the goods go into a Haier warehouse as collateral for the distributor to the bank. When the distributor requires the goods – as consumer demand returns and retail outlets open – the distributor can redeem goods by paying an amount to the bank allowing Haier to release specific goods to the distributor.
The distributor can redeem goods piece by piece until the loan is paid off. This structure relieves pressure on the distributor by ensuring it can hold a certain amount of inventory to meet demand –but avoiding having to pay cash in advance for goods.
With collateral held in Haier warehouses, the bank can more comfortably offer competitive financing rates to the distributor.
During 2020, 1,928 distributors were assigned credit lines with 1,300 distributors making use of the service. Up until the end of August, the accumulative finance volume reached 2.93 billion renminbi. Haier anticipates finance volumes to reach 5 billion renminbi by the end of the year.
Since March, this product has contributed to the recovery of Haier’s domestic franchise business by providing low-cost finance to small and medium-sized retail businesses selling on Haier’s goods. There is the potential for this service to be expanded to larger distributor channels in the future.
Haier’s SCF platform also offers accounts payable (AP) finance which works as a reverse factoring product based on the irrevocable payment commitment of Haier and its subsidiaries.
An SCF programme launched in September 2019 for Candy – a Europe subsidiary of Haier – reached a milestone this August as it started to onboard suppliers. A further project involved GEA – Haier’s US subsidiary – is due to launch in the fourth quarter this year.