Opinion cools towards supply chain finance scheme
Industry has given a mixed reaction to the government’s Supply Chain Finance (SCF) scheme.
Downing Street launched the initiative to encourage giants like Tesco to offer up to £20bn of affordable credit to smaller firms in the supply chain. It launched SCF in October alongside glowing praise from the Federation of Small Businesses, who noted that it would ease the strain on cash flow and encourage growth in smaller suppliers.
Smoke and mirrors?
But not everyone is quite so enthusiastic. Peter Smith at Spend Matters warns it could all be an illusion of action on the part of big firms. It could, for instance, encourage them to further delay payments, since they know their suppliers can go down the road of applying for credit from SCF.
Pete Loughlin at Purchasing Insight says the scheme could be a PR coup for the corporate giants who lent their names to the scheme, but won’t change much for small firms still being bullied. They could be giving with one hand and taking away with the other.
“Supply chain finance reduces the cost of doing business because the middleman takes less money out of the supply chain,” says Loughlin. “In other words, there’s more money to go around. But who decides how to divide up the cake? The buyer could say to the supplier ‘Yes we’ll pay you 30 days early but before we do, we’d like to extend your standard payment terms by 30 days’.”
‘Piece missing’
Stefan Foryszewski at OB10 that despite its huge potential, there is a ‘piece missing’ in the plan: “For SCF to have a significant impact, a company must receive and approve invoices swiftly and accurately before a financing party can advance funds to suppliers. For many large organisations, this process is still paper-based, manual, error-prone and incredibly slow.
“By the time an invoice has been delivered by the postal system, landed on the right desk, been accurately keyed into the finance system, found its way to the appropriate approver and been marked as approved, weeks may have passed.
“For supply chain finance to have a meaningful impact on a supplier’s cash flow it needs approval within a matter of days, if not hours.” He adds that an essential solution is the uptake of electronic invoicing, a process UB10 can provide.
Options
SCF isn’t the only method of easing the the credit strain. While commentators are still optimistic about the government’s plan to get big business collaborating with smaller suppliers, Loughlin notes that there are other potential solutions. These include schemes from OB10, Taulia, Oxygen Finance, Tradeshift, Basware – and even low-interest credit cards.
Related Posts
Corporate giants partnering with crowdfunding innovators →
Euro out of favour with emerging economies →
Why China is investing in Europe →
