Taking Supply-Chain Finance Global

When Hewlett Packard split into two companies in 2015, Hewlett Packard Enterprise, or HPE, emerged as the entity serving enterprise clients, focused on servers, storage, and networking. With approximately $27 billion in annual revenue, HPE specializes in providing solutions that enable customers to capture, analyze, and act upon data.

As a manufacturer with a global supply chain, HPE was heavily impacted by Covid-19. “At the same time we needed to support our suppliers amid the turbulent times of the pandemic, we wanted to improve returns on our short-term investments,” says Mike Seal, HPE’s treasury director, capital markets. Many suppliers were struggling to survive and were dealing with long payment terms from HPE. At the same time, the treasury group was looking for ways to earn higher returns on excess cash. That’s when they got serious about an automated early payment program.

“We did not have a history of paying suppliers early in exchange for a pricing discount,” Seal says. “We have more than 1,500 suppliers, and although we knew some companies have early pay programs, it was always considered too complex to do internally. The improved use of capital with higher returns motivated us to look further into various firms’ offerings, and we discovered that it would be achievable because we could automate most of the process.”

The treasury team began researching their options. The company needed a supply-chain finance system that was easy to use for suppliers and as hands-off as possible for HPE staff, yet sophisticated enough to support HPE’s highly complex supply chain. HPE also wanted to have the choice of either funding the program internally with its own excess cash, or giving suppliers access to external funding providers.

After doing their due diligence, decision-makers selected C2FO and launched the HPE Supplier Financing Program. “This was a great opportunity to use our capital to help suppliers, earn better returns on capital, and see those returns end up as part of operating profit instead of being realized in the ‘Other Income & Expense’ line,” Seal says. “And by using an automated platform, we were able to achieve these benefits without utilizing a lot of internal head count.”

Together, HPE and C2FO built a solution that met all the company’s requirements. “Every quarter, we look at our cash forecast and determine how much excess cash we expect to have available for making early payments,” Seal explains. “If we have enough extra funds, we will designate the amount in the C2FO platform. We can specify the geography, the currency, and the discount rate we require.” The designated amount of funds can change every quarter, and so can the discount rate suppliers must pay, which can also be tied to a floating base rate like the London interbank offered rate (LIBOR)—or now the Secured Overnight Financing Rate (SOFR).

To the extent suppliers request early payment at acceptable rates of return, but HPE doesn’t expect to have sufficient excess cash to fund all requests, banks around the world step in to help. A bank in the program makes the early payment, and HPE pays the bank on the normal due date for the invoice. “The program is available to our suppliers in 20-plus countries around the world,” Seal says. “We were one of the first C2FO customers to set up banking partners in so many jurisdictions. The fact that suppliers can participate in the program via bank funding when HPE doesn’t have sufficient cash to devote to early payments ensures a consistent experience for suppliers.”

Seal and his team had to navigate the different tax and regulatory implications of the program across the different nations where HPE does business. “The treasury team worked very closely with HPE’s tax department and C2FO to make sure we successfully navigated all the prospective hurdles,” Seal points out.

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Now that the wrinkles around the world have been ironed out, the HPE Supplier Financing Program functions like a typical early payment system. It is fully voluntary for suppliers. Those that choose to sign up can periodically view the invoices HPE has approved within the C2FO system and select which (if any) they would like to have paid early. Within 45 days of the program’s launch, more than 20 percent of eligible HPE suppliers were enrolled. And within the first 60 days, HPE had already provided just over $100 million in early payments.

“One of our top strategic suppliers told us that our early payment program provides them with quick and simple access to working capital,” Seal says. “They said it helps them manage cash during times of certainty—and times of volatility.”

And for HPE treasury, the impact has been remarkable. “Where we’ve used our own capital in the program, we’ve gotten a return greater than 4 percent,” Seal reports. “This at a time when investments and money-market funds were earning a small fraction of 1 percent. As interest rates go up, we’ll see if the benefits rise in sync, but we are clearly earning much higher returns on money that we put into this essentially risk-free program than we would be earning elsewhere for low-risk investments.”