Belco Global Foods

Karime Silveyra

949782

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Case Study

Belco Global Foods

• Belco is an American company that exports to several different countries
• This company was founded in 1970 in New Orleans
• Belco sells poultry products which are perishable
• Margins range from 2% to 4%
• They don’t have pricing power. (Elasticity)
• Nominal price (the price they pay). Vs. Terms 5 net 20 (if you pay early you will have 5% discount, if not you will have to pay 20 days from now).
• The sales are $1 billion us dollars annually and fifty percent of those sales are received in credit. The solution is not raising the price of the products.
• Global credit and risk management area in the company was substantially important because the profitability relayed on them. Their activities were: track all the customer’s credit terms, credit limits, payment history, renegotiations, claims, deductions.
• Koorista Kiev is a Russian company who buys from Belco
• Koorista Kiev was a very important client for Belco. They had an excellent payment history but had been having problems paying for the newer accounts.
• If some receivables turned into bad debts, Belco’s profitability would suffer.
• Koorista Kiev owed Belco $84,000 us dollars and another account of $78,000 us dollars
• Belco really cared about this customer so they gave them a 30 daylong term to pay the money that was owed.
• It has been 40 days since and they still have 15 more days to clear the other $78,000 us dollars.
• The reason why this Russian company owed so much money was because of the economic situation Russia had been facing. In 2008 the ruble devaluated against the dollar from .040 USD/Ruble to .031 USD/Ruble in 2009
• The case gives you several ways to solve the problem

• Continue asking the company to clear their debt: this could potentially jeopardize the relationship between both companies. This will result in sales dropping. Kiev will also lose a very dear provider who has been good to them for years. Kiev’s customers will not be satisfied
• Use a commercial dispute resolution mechanism: arbitration by someone else. This could give Belco a bad reputation with other potential clients who do not want to be chased down if they are not able to pay for something they bought, which will make them search for other providers in the market who will not fight with them.
• Insurance company: People at Belco have considered this option because this will not hurt the Russian company or Belco itself. This is a cost that has already been paid for with the insurance fees, this option will not put at risk their reputation in any way. The cons of this decision is that the insurance company can deny paying the fee, or can take forever to pay for it, which would be the same as waiting for Kiev to pay.

• Belco has to choose one of these solutions in order to get their money back, but of course all of these solutions have a consequence, which has to be evaluated and analyzed carefully by Belco because this could potentially hurt their relationship. Why does Belco care about their relationship? Because Koorista Kiev is a very important customer who regularly buys from them and it would not be good for Belco to ruin this work relationship
• Belco has to learn from this experience and not let it happen again