Non-bank Financial Institution Casebook

| 17 RETURN TO CONTENT PAGE eliminating related costs. Through this solution, the days sales outstanding (DSO) cycle for the insurance companies was also reduced, which acted as a catalyst for insurers to agree to the change in payment terms. The Result With Citi’s purchase card solution, STFC now pays insurers on a daily basis for the policies purchased for its customers. Previously, STFC had a traditional banking method using BG arrangements to fund insurance payments. This solution was expensive, with STFC being charged for its payables to insurance companies. Post-implementation of the solution, STFC can make regular monthly payments that are captured on purchase cards on a daily basis. This gives STFC an advantage of increased credit period at no addition cost wherein Citi pays the insurance companies upfront. STFC pays Citi on the due date as per agreed cycle, freeing up working capital and reducing its expenses. The insurers also receive funds earlier compared to previous monthly payment cycle. STFC has realized cash flow optimization at both ends, as well as strengthening its working partnerships. With the purchase card, STFC could now pay insurers as and when the insurance policies were issued. Benefits for STFC > Interest free increased credit period at no additional cost > Elimination of charges incurred for incumbent bank guarantee solution > Extended payment cycle compared to bank guarantee thereby leading to working capital efficiency (estimated 20% increase in payment cycle) Benefits for Insurers > Upfront and early receipt of payments leading to increased working capital efficiency > Opportunity to increase investment gains from collected premium