Rethinking cash management in India with French dairy giant Lactalis

For today’s corporate treasurer, digitalisation is no longer limited to enhancing treasury operations and connectivity with banks. With the shift in online business models and availability of a wide range of digital payment options, treasurers are investing more time and effort in seeking out new technologies, and very often, working with fintech providers to develop innovative solutions that address their specific needs. 

Lactalis India is the local subsidiary of the French multinational, with 5,000 employees across three businesses, offering milk, cheese, ghee and curd through retail outlets across the country. The company works on a B2B basis, with a network of 6,600 distributors and small retail dealers.  

When Lactalis set out to solve its receivables challenges in India, it needed a provider that could understand and develop a customised solution for its unique sales and fulfilment model in India. 

“A third of our customers and distributors, about 3,500 of them, are still paying us in the traditional way – with cash,” explains Odete Ribeiro, CFO of Lactalis India. “We had people at 35 locations accepting cash and moving it physically to the bank – we had to eliminate this as it was costly, risky and involved a great deal of manual work.”

Risky business 

The heavy reliance on cash has brought significant risks related to fraud and manual errors, as well as additional time and costs, including insurance to cover losses from the cash-heavy process. While Lactalis India employs SAP Enterprise Resource Management (ERP) system for its treasury operations, it could not manage the scale and unique conditions of India’s business landscape.  

The company concluded that automation was the answer. “Last year, our most important project was digitalisation because we needed to avoid investing our working capital in rectifying outstanding payments – and to avoid business disruption by events like Covid-19 or the war in Ukraine,” explains Ribeiro. 

Creative co-operation  

For Lactalis, its ambition went beyond a simple e-invoicing and electronic payment solution. Given that India, a country of 1.3 billion people, has nearly 1.17 billion smartphone subscribers, Lactalis wanted to go a step further and support its dealers and distributors by giving them a mobile app, so they can payments for their invoices, and have real-time visibility over their account status real time.  

Lactalis put the project out to tender. BNP Paribas won the tender thanks to its analysis of Lactalis’ challenge and ability to bring in a fintech provider best able to meet the challenge. The bank ran a series of sessions with the Lactalis team to map out the end-to-end process and structure the appropriate solution based on its requirements.  

This was just the start. BNP Paribas evaluated a number of fintech companies, following the rigorous evaluation process developed by its innovation hub in Paris. “The bank acted as a bridge between the client and the fintech provider,” says Rupa Balsekar, Head of Transaction Banking at BNP Paribas India. “Because the client doesn’t know the fintech they are partnering with, it is essential they have confidence that the bank does.”  

“As the role of a treasurer inherently involves assessing future risks and weighing them against potential uses of capital; implementation of bespoke digital treasury management to bring in efficiencies is inevitable. Banks like us have the expertise to co-create digital solutions in collaboration with fintech partners that are sector agnostic and can be replicated across countries,” said Balsekar.

Flexibility was key. The team established a customisable process, enabled by the new app-based solution. Through the app, dealers and distributors can click on multiple invoices and make payments against each one or choose part payments, and settle transactions via a wide variety of payments means available locally in India.  

“The new end-to-end solution is integrated with Lactalis’ ERP system, providing dealers and distributors with a real-time view of their current accounts and payments status,” said Balsekar. “The invoice-wise app and integration automates reconciliation and provides Lactalis with real-time information on its receivables.” 

A mobile app simplifies payments and digitalises the order-to-cash cycle with wider social benefits. “Bringing our distributors onto a digital platform reduces dependence on cash and advances financial inclusion because they now need to open a bank account,” adds Ribeiro.   

Promoting financial inclusion  

Technology is just half of the challenge: persuading retailers to use the app is essential for Lactalis to realise its benefits. To date, adoption has been slow.  

“Although the app is user-friendly, many small customers are still reluctant to switch from cash to digital,” says Ribeiro.  

These challenges are not unique to Lactalis. According to the World Bank’s latest Global Findex report, some 230 million people remain unbanked in India, and a third of existing bank accounts are inactive. Only 12% of Indians have made a digital merchant payment, compared with 8 in 10 adults in China and 2 in 10 in other developing economies. 

Promoting financial inclusion is a key priority for Reserve Bank of India, the country’s central bank. As the first step toward broader financial inclusion, the RBI has introduced a series of policies and initiatives to improve access to banks and provide bank accounts in a simplified and affordable manner.  

Ribeiro adds: “In India, our commercial staff have particularly strong relationships with their customers – so we are communicating the benefits through this connection and offering customer incentives to slowly change their mindset.” 

 “The digital transformation is not just within Lactalis, but also amongst the distributors and dealers,” adds Balsekar. “Lactalis is moving the entire order-to-cash to a digitalised ecosystem. We are empowering the transformation and supporting financial inclusion along the way.” 

“I am happy with the app, but the ongoing task is altering the mindset in the community where we are implementing it,” concludes Ribeiro. “Changing thought processes will change the way people live. As a company operating in India, we have a responsibility to drive that change”.

This is the third episode of BNP Paribas’ “Thinking Treasurer” interview series, produced in partnership with The Asset.