Abstract

Testle India Ltd, a subsidiary of a global consumer packaged goods (CPG) giant Testle Inc, implemented a bold “zero debtor policy” in 2009 with a motive to encourage cash sales and have no credit sales. This enabled the company to realize a negative working capital cycle, but it faced a challenge from the company distributors. To make life easier for the distributors, Testle India tied up with HDFC Bank, a leading private sector bank in India, to provide channel finance to its distributors. While going in for channel financing brought about the much needed liquidity for the distributors, the facility came with its own set of problems and challenges.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the advanced financing approach/facilities adopted by Testle
• Differentiate channel financing from other traditional working capital instruments
• Understand the process of CF financing
• Analyze the benefits of CF financing both to the companies and to the distributors
• Explore the key issues faced by companies during the implementation of this facility in India

Keywords

Zero Debtor, Negative Working Capital Cycle, Liquidity, Distributors, Re-Distributors, Working Capital, consumer packaged goods (CPG), FMCG, Cadbury, ITC, Amul, HDFC Bank, Over Draft, Current account, Leverage, Credit Period, Credit Limit, Area sales manager, MNCs, CRISIL , D&B, Credit Rating