Case Study: Optimising Working Capital “I need enough credit with my suppliers to allow them to sell to me, and enough credit on account to enable me to sell to my customers. Effective cashflow management keeps us in business.”
Joe Hemani, Owner & Chairman, Westcoast

Westcoast – leading distribution

Westcoast is a wholesaler for the computer industry’s household name brand products, from tablets to telephones, monitors to MP3 players. Most of the printer and toner cartridges sold in UK shops are likely to have come via Westcoast. Their customers represent many different vertical markets and sectors.

With revenues of almost £1.6 billion in 2015, Westcoast employs 1,200 people. Its 5,000 customers range from large corporate commercial resellers to high-street retailers and large corporate users to small shops.

Westcoast’s company strategy is to distribute its suppliers’ products to the UK market in a timely and cost effective manner. Westcoast therefore needs to purchase a sufficient quantity of the right products to fulfil its customers’ demands and ensure they retain their business and maximise revenues.

The company was founded 30 years ago and still remains a privately owned company. As such, it does not have the opportunity to raise capital from corporate bonds or shareholders. It must look to different solutions to expand its working capital.

As a distribution business, effective use of working capital is the key to Westcoast’s continued success.

Working capital – the challenge for privately owned companies

Since the 2008 global banking crisis, privately owned UK companies, like Westcoast, have found access to capital challenging.

In the past, Westcoast’s ability to access working capital was sometimes reduced because it operates in a market characterised by a gap between invoice payment terms with suppliers and those for customers.

The electronics and computer sector is typically risk averse so suppliers offer short credit terms which are payable by direct debit. For example, one large PC, computer software and consumer electronic supplier offers Westcoast payment terms of 14 days. However, customers invariably want to pay on 30, 60 or 90-day terms.

With longer payment terms for its customers than those offered by its suppliers, cash was going out of Westcoast more quickly than it was coming in. As a consequence, it wasn’t able to purchase optimum levels of stock for its customers without incurring hefty rates of interest.

Westcoast wanted to increase the amount of available working capital. It looked for an alternative payments solution which could supplement its traditional invoice process and complement its existing business credit and insurance structures. It also wanted this additional capital to be available at a competitive rate.

Making use of American Express’ straight forward and simple electronic payment solution enables Westcoast to access incremental working capital. By implementing the solution, both as a buyer and a seller, they’ve also been able to take advantage of process efficiencies.

Working capital benefits as both a supplier and a buyer

American Express’ payments solution gives Westcoast more days to pay than previously experienced. The working capital solution is advantageous for Westcoast because the payment period of up to 55 days with American Express is considerably longer than the conventional arrangement with suppliers. As a result, days payable outstanding (DPO) are increased and Westcoast’s working capital is optimised.

Westcoast can access the multi million pound credit facility that it has with American Express. This incremental capital facility enables Westcoast to buy at competitive prices and meet customer demand.

As Sunil Madhani, Finance Director, says, “We have the flexibility to access funds at any time through American Express, so it has had a very positive impact.”

At the same time Westcoast’s suppliers benefit from American Express’ working capital solution because they receive payment more promptly than via a traditional invoicing process. This decreases their days sales outstanding (DSO).

As a supplier, Westcoast also gains working capital benefits from earlier receipt of customer payments because of the electronic payments solution. Westcoast receives payment five days after their customer’s authorisation, which is quicker than conventional invoice terms, while the customer pays only when the statement is due.

BENEFITS FOR WESTCOAST AS A BUYER

  • Improved working capital
  • More stable and predictable working capital
  • Diversified capital resources and reduced need for external financing
  • Improved cashflow from more flexible payment periods
  • Increased DPO
  • An additional payment tool

BENEFITS FOR WESTCOAST AS A SUPPLIER

  • Ability to meet market demand
  • Access to incremental funds
  • Improved working capital
  • More stable and predictable working capital
  • Faster and easier customer payments
  • Reduced credit control admin

BENEFITS FOR SUPPLIERS TO WESTCOAST

  • Ability to fund market demand
  • Prompter receipt of payment – a decrease of DSO

Find out more about how American Express could supercharge your cashflow here.