On a mid morning my phone rings from my client in FMCG Distribution business and says that he needs 25% additional working capital within this week to buy additional stocks that Principal company wants them to keep as they are going for a Big Marketing Campaign to cash on the festive season and they anticipate huge demand. As a Distributor in a competitive scenario you don’t have much choice but to support the Principals.
There were 2 obvious choice to raise funds – one, go to the existing bankers where our client had good long standing relationship but to get additional working capital to the tune of 25% of existing working capital in 7 days even from best of the private bank is still a challenge. We applied anyway. So next choice was to go for Private Finance from friends/ associates that would be costly by about 4% but at least solve the challenge at hand. Unfortunately, due to festive season most of the Private Financiers were running a tight position not showing any positive response.
Our client, a family business was in this Distribution business for over 30 years dealing with around 2000 strong retail network and having very long standing relationships with these buyers. Most of the times as FMCG market runs on sales scheme with a pressure to achieve monthly targets. These schemes are generally in form of free products or rebates on achieving a quantitative target, so this market very well understands language of schemes and most retailers take advantage of this to enhance their gross margin on the product. While brainstorming in a meeting with the client we said if there can be Scheme on Sales why not we run a “Scheme on Advance Payment” what’s that ? asked client. We designed a Scheme on Advance Payment – where Retailer will pay 1 crore in advance against that month's purchase and our client will give additional Rebate of Rs.30 to Rs.100 per case (works to about 0.75 % to 1.5% on different products) plus they will get a Gold Coin and chance to participate in Lucky Draw – a 5 day Trip to Hong Kong/Macau” with a family. And this scheme was valid for next 5 days. The pitch to Retailer was that they sell more by passing some benefits to customers and or make some quick bucks from the idle cash lying in their banks accounts.
We selected top 20% of the strong Retailers and ran this scheme as “Star Trade Scheme” for privileged customers , some 25% of Retailers picked up this scheme and client collected more than what they required as a working capital in a weeks time and cost of raising this was lesser than the bank interest. Surprised ? Even we were... but its fun to solve business challenges and partner with our clients in their growth story.
Raising funds is just not about running from pillar to post to Investors & financial institutions, if we drill down into our financial model you may figure out hidden opportuntiies like never before.
(All numbers in this blog are hypothetical for confidentiality reasons)