Implementing a Zero Debtor Policy through Channel Financing in an MNC|Finance|Case Study|Case Studies

Implementing a Zero Debtor Policy through Channel Financing in an MNC

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Case Details:

Case Code : FINC089
Case Length : 9 pages
Period : 2013
Pub. Date : 2013
Teaching Note : Available
Organization :Testle India
Industry : FMCG
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Distribution Network: Key for Success of Trestle India

India is a vast country with varying demographics and different topographies. The success of any FMCG or CPG depends not only on the quality of the product but also on how effective the distribution system is. The distribution system that enables different products of the company was available in different parts of the country round the clock and on all the days in a year. The problem is augmented when the products of the company are perishable in short periods of time...

Channel Finance at Trestle India

At Trestle, the distributors approach their respective area Sales Manager (ASM). The ASM asks the distributor concerned for the documents required for opening Channel Financing. On collection of the documents, the ASM checks the distributor’s eligibility before recommending credit/ Overdraft (Refer to Table 2). Once the distributor is found eligible, the credit committee at the head office calculates the Credit Limit of the distributor using a formula....

Operating Architecture of Channel Finance at Trestle India

Once the distributor places an order at Testle’s order management center (OMC), Trestle checks for availability of sufficient funds in the distributor’s CF account. Refer Figure 1. If sufficient funds are available, the order is dispatched from the respective DC and an invoice generated. After the goods are dispatched or in transit, Trestle India sweeps funds (for amount mentioned in invoice) from the distributor’s ‘account A (current a/c)’. If the initial balance in the distributor’s ‘account A’ is zero, it is simultaneously back-filled at the time of sweep (process of transfer of funds) from account B (On the basis of automated standing instructions from the distributor) because the distributor has his funds in ‘account B’ only and the overdraft limit also resided in ‘account B’. During the sweep if the funds in ‘account B’ are insufficient, then the overdraft limit is utilized automatically and the distributor is paid interest and principal amount for utilizing the overdraft facility under CF...

Not a Cake Walk

Getting all the distributors on board was a great challenge for Trestle India. Some of the distributors were not interested in this facility because they were not aware about the facility. Also, some of the distributors were afraid of the interest that the bank would charge for providing the CF facility. One distributor of Trestle India, Goel Traders from Punjab (State in North India), was one of those not interested in the CF facility. The firm was under the impression that it would have to go through a lot of formalities to avail of CF. It believed that it would be better to approach the local money lenders even if they charged an interest rate of 24% per annum as there were very few formalities involved...


Exhibit I: Documents Required by HDFC Bank for Offering Channel Finance Facility to its Distributors

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