Supply chain finance gets mixed reception

The government's new supply chain finance initiative has drawn a mixed reaction from vendors, AccountingWEB members and even government officials. 

Last week, David Cameron announced the plan, which he claimed would see £20bn of cheaper financing open up to smaller companies. 

Under the initiative, which was recommended by the Breedon taskforce on non-bank finance, large firms will notify a small firm's bank as soon as an invoice has been approved. Then, the bank will advance immediate funds at a lower rate of interest. 

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Comments

what a waste of time and effort    2 thanks

androo235 | | Permalink

First, if the invoice is approved then why not just pay it? Why not put systems development into doing that fast and efficiently? There was talk once of supplier (small) firms being able to automatically and routinely charge buyer (large) firms interest on late payment. Now we have this, the exact opposite where the (small) supplier firm funds the (large) buyer firms (deliberate and systematic) late payment.

This introduces another layer of bureaucracy and cost at the (usually much smaller) supplying companies expense. It's driving logic seems to be to get the banks involved and up their take from the cake because they need a few bob. Great idea, let's have invoice approval communicated to bank, who, instead of transferring the money from one place to another for a small, or no, fee, were the bill simply to be paid, now get to charge a fee and interest to the supplier while the buyer hangs on to the cash. A wonderful layer of non-productive, but lucrative, red-tape and bureaucracy is born. Hey, the banks can even (subtly of course) encourage buyers to pay late, more interest for them and the supplier pays.

This is a contribution to a growing "custo inglese" (look up a similar phrase in reference to Brazil - though we still have a long way to catch them - though they are arguably travelling in the opposite direction) which our financial and government sectors impose on the productive economy.

Brilliant, not.

Invoice approval to become a profit centre.    1 thanks

androo235 | | Permalink

Yet more screwed up incentives. I'm sure a clever bank can find a way to say thank you to an efficient approver in recognition of the income stream such approvals produce for the bank.

Perhaps the suppliers accounts can be packaged-up securitised and then sold to investors (backed by the blue chip invoice holders, so Triple A all the way....). Then sell the securities to some and let favoured clients (the ones who approve early and pay late) short them. A new scam is born. Brilliant.

 

Incidentally why does this board have a US spell checker? Although I appreciate the logic of their spelling I'm used to it our way and it irritates  me to keep being told to correct words that I am not spelling wrong.

i've just noticed that....

androo235 | | Permalink

That this was "recommended by the Breedon taskforce on non-bank finance". It's beyond belief that people get paid for this stuff. What exactly is non-bank about this?

Invoice finace by another name?    2 thanks

jrussell.reesrussell | | Permalink

David Cameron again shows his naivety when it comes to business and the real world of finance.  If a large company is to advise a small suppliers bank that an invoice has been approved for payment so the bank can advance against that 'assurance' one must ask who is going to pay for the administration cost of the large company and the bank in this system.  It would be far cheaper for the large company just to pay quicker as this to some degree gives the larger company even more reason to delay payment and stretch the credit terms further.  The banks will not be that keen to advance against the 'assurance' unless it comes with some form of security.  In the end this is just another form of invoice finance which is already readily available which might just marginally increase the percentage of the advance but for a huge extra raft of paperwork