Finding the Capital to Fund Corporate Growth

From coronary stents to defibrillators, and from pacemakers to devices that mask chronic pain, Boston Scientific aims to build the best possible medical solutions to support physicians and their patients. The company currently offers more than 13,000 products across 100-plus countries—and it’s perpetually growing that portfolio by investing in both innovation and mergers and acquisitions (M&A). To support those ongoing research and development (R&D) and M&A investments, the treasury team is perpetually looking for ways to “fund the journey to fuel growth,” as the company’s strategy statement puts it.

“One of our areas of responsibility is to increase cash flows to support Boston Scientific’s $1 billion in R&D,” says Bob Castagna, vice president and treasurer. “That means reaching beyond treasury’s boundaries. A few years ago, we evaluated our options for improving working capital. Any changes to our payables and sourcing agreements would be outside of our direct control, but we decided to explore the options available to the company.”

Castagna formed a project team to analyze the company’s current spending and payment terms, as well as to benchmark payment terms across the global healthcare sector. “We started with two treasury people and two sourcing people,” Castagna says. “We found that we were paying faster than anybody else in the industry.”

Payment terms were inconsistent across Boston Scientific’s broad base of suppliers, and the company had not followed suit when competitors substantially pushed out their terms. “On receivables, we’ve been doing discounting and factoring for 30 years,” Castagna says. “We monitor our performance, and people pay attention—everybody gets the importance of optimizing receivables. But payables were like the Wild Wild West. Boston Scientific’s official payment terms were 45 days, for no good reason except that nobody seriously questioned it. And then some contracts had much shorter terms. We found one supplier that was getting paid in 15 days in exchange for a slightly lower price.”

Castagna knew there was a large cash flow opportunity in fixing payables, “but we didn’t want to take the same approach we saw from other companies in our industry,” he says. “Other companies were just telling suppliers that their terms were suddenly longer. They did it because they could—but that is aggressive toward the suppliers that are helping the business thrive. We wanted to take a more collaborative approach, which led us to supply-chain finance.”

Boston Scientific decided to work with PrimeRevenue to build a supply-chain finance program using multiple midtier relationship banks. The project team intentionally avoided a bank-led solution, Castagna says. “Over time, banks change their focus. If we had a supply-chain finance program with a single bank and they decided not to do that any longer, it would be highly disruptive. Working with a multibank third-party solution insulates us from that scenario.” With the support of PrimeRevenue, Boston Scientific quantified the working capital optimization opportunity, identified which suppliers to target, and developed supplier messaging.

“We calculated that we could increase cash flow by $100 million,” Castagna says. He built on the initial project team of four to create a cross-functional steering committee. “When we first presented the concept, there were many questions and pockets of resistance. If a key stakeholder had strong reservations, then we invited them to join the steering committee. This way, we could address their concerns as a group and hopefully convert them into a supporter. The steering committee was critical to guiding the team through operational challenges, toward achieving our $100 million cash flow goal.”

The next step was to make the sales pitch to suppliers. Treasury brought a business perspective to that process. “We went door to door with our top suppliers, talking to CEOs, CFOs, and division presidents,” Castagna says. “We explained that in order to promote growth, we needed to improve working capital—and that supporting our growth would ultimately be good for our suppliers as well. So we were standardizing and extending our payment terms to 90 days, while also providing a collections lever that suppliers could pull. If they wanted to get paid as early as day 10, they would be able to do that for a nominal discount on the payment.”

The initial conversations were not easy. “We had to sell the idea, and every single time, the first answer was ‘no.’ So, we would tell them, ‘Take your time; that’s fine. But we need to get you to yes.’ Eventually, we did get there with most large suppliers.”

Now, more than 140 Boston Scientific suppliers are participating in the supply-chain finance program. Contracted payment terms are 90 days across the board. PrimeRevenue receives payment from Boston Scientific for each invoice at that time, and its default is to pay the supplier after 90 days as well. But suppliers can choose other options instead.

A portal shows suppliers all their invoices that Boston Scientific has approved for payment. With one click, a supplier can select a specific invoice to be paid immediately, after 30 days, after 60 days, etc. Funds for faster-than-contracted payments come from the banks Boston Scientific recruited to participate. When an invoice is paid early, the invoice amount is discounted at a rate Boston Scientific negotiated with the banks. All participating banks offer the same rate, and because it is based on Boston Scientific’s credit rating, it is lower than most of the suppliers could secure on their own.

“Sometimes a supplier is fine with waiting 90 days,” Castagna says. “The benefit of the supply-chain finance program is that the supplier has control on a daily basis. If they choose to get paid earlier, they just click a button, which automatically triggers bank funding at the requested time.”

Castagna credits a good deal of the project’s success to the cross-functional team that led the charge. “This was the single hardest project I’ve undertaken in my career, because we were taking on the entrenched habits of the entire organization of 36,000 people,” he says. “Literally thousands of people touch our payables, and many used to undervalue the importance of payment timing. We organized a roadshow to teach procurement teams why payment terms matter.”

See also:

• Genuine Transformation of Working Capital Management
• Taking Supply-Chain Finance Global
• And the on-demand webcast celebrating our three winning projects: How Award Winners Optimized Working Capital and Payments

For Boston Scientific, the program ended up more than doubling the projected benefits: It has freed up around $230 million in cash flows. “This was a once-in-a-lifetime opportunity because of the sheer scale of it,” says Castagna. “How many projects does a treasury team do that generate $200 million?”

For the treasury group, the project helped raise their internal profile. “Eighty-five percent of this project was change management,” Castagna says. “Our treasury team understands that we need to be change agents. We come up with ideas, then figure out how to get people to ‘yes’—whether we want to put in a currency hedging program or issue convertible bonds. We are innovators, and whenever we want to do something new, we have to sell people who are super smart and ask tough questions. How do you move people? You make a business case, putting the numbers up front and developing a value proposition. It’s a muscle that treasury has developed over time.”

For suppliers, the option to collect early—and at a considerably lower cost than if they tried to raise money themselves—makes the program desirable. “We haven’t gone out and polled participating suppliers, but we’ve had the same companies in the program since the beginning,” says assistant treasurer Meaghan Adams. “The fact that the same vendors are still using it indicates it’s helping their business.”

And for Boston Scientific customers, the newly freed liquidity has made possible innovative product lines and acquisitions that enable the company to better serve its customers. “Our products touch more than 30 million patients around the world each year,” Castagna concludes. “We’re improving patients’ lives, and sometimes even saving their lives.” That’s made possible, in part, because treasury’s working capital improvements have funded the journey that fueled Boston Scientific’s growth.