Memorandum Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Memorandum Case Study Solution

Beneficiary

All the three parties attached to SCF are benefited for P&G, It enables them to extend their liabilities, improve their cash flows &cash conversion cycle as well as lower their financing needs. For suppliers, it would enable them to receive their payments in a short period of time, at a very minimum discount; enabling them to lower their funding needs, which results in an improvement in liquidity. For Bank, SCF Bank would be receiving its service charges on every transaction The SCF financing rate are considered to be competitive, because the bank charges the LIBOR+ 1% spread as its fees by multiplying the number of the loan days. In addition to this, the bank charges a nominal spread as a fee, which is considered to be competitive.

Win-Win-Win Program

According to P&N SCF creates win-win situation for all the parties. Supplier & Customer are allowed to negotiate on their terms & condition of payment. For early payment; invoice can be cashed at some discounted amount, allowing both the companies to have hands on the cash whenever its needed. In addition to this, it also improves the financing needs & cash conversion cycle. In short; it is a win-win-win strategy, because it benefits all the three parties that are involved in this contract. The suppliers receive the payments faster at lower cost. P&G would then be able to extend its payment terms and SCF bank receives a fee for its services.

Recommendation to Fibria

Fibria should be continuing it, because by doing so the company will improve its Cash conversion cycle. If the company doesn’t not agree with SCF then it would be receiving late payments from P&G, resulting in loan requirement& increasing their short term borrowing. The company would find itself in an unwanted cash shortage position &it already has a high debt ratio in its books of 51% in 2015, which could also go beyond this level.

Conclusion

P&G is one of the market leaders in the consumer packaged goods (CPG). The cash conversion cycle of the company is highly disturbed, because the company has made earlier payments to its suppliers (external partners) in comparison to the industry average. Due to this, the company requires an additional working capital requirement. The company fulfills its working capital requirement by taking loan from bank, which ultimately improves the leverage position of the company. In order to reduce its cash conversion cycle as well as to improve its liquidity position; the company has announced the extension of its payment terms for its suppliers. In addition to this, the company has also introduced a SCF program in order to maintain its long term relationship with its suppliers. The SCF program benefits both the parties in such a way that P&G would be able to extend its credit terms, which lowers its funding needs; proving to bebeneficial for the suppliers because they would get an earlier payment,with a minimum discount............................

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