This week, David Cameron announced the Supply Chain Finance Scheme: a package that will provide cheaper finance for small businesses. This innovative programme will allow large companies to financially support their suppliers. The scheme aims to secure 10,000 business with increased levels of affordable finance whilst driving job and businesses growth.
In Downing Street, Cameron met with the faces of Britain’s best known corporations to discuss the importance of larger business supporting their supply chains. Organisations include ASDA, Siemens and Kingfisher.
“This Government is determined to back all those businesses who aspire to get ahead and take on more people”, explained the prime minister. “In the current climate, viable businesses can struggle to get the finance they need to grow – this scheme will not only help them secure finance and support cash flow, but will help secure supply chains for some of our biggest companies and protect thousands of jobs.”
This scheme, already being implemented by the likes of Rolls Royce and Vodaphone, allows large organisations to vouch for their suppliers’ incomes. In return, banks will allow the small and medium businesses access to credit to improve cash flow and lower costs within the supply chain. This is because larger companies generally have a strong credit rating and excellent access to fiance, whereas SMEs generally fund their working capital via overdrafts, invoice discounting or factoring.
Nigel Taylor, marketing director and head of e-invoicing solutions at B2B integration global leader GXS said: “It is encouraging that the UK government continues to recognise the economic challenges small and medium businesses currently face. Many smaller companies today are faced with a liquidity challenge – cash flow is always a priority and they are often challenged with a lengthy cash conversion cycle due to extended payment terms, late or even non-payment.”
This new mode of finance will also benefit larger companies, Taylor continues: “By ensuring their suppliers’ cash flow is more predictable and reducing working capital concerns they minimise supply chain risk.”
In practice, banks will be notified by the larger company that an invoice is being approved; the bank is then able to offer a 100 per cent immediate advance to the supplier at lower interest rates based upon their customer’s credit rating knowing the invoice will be paid.
“The new Supply Chain Finance scheme could help smaller firms in two key areas – improving their working capital and tackling the issue of late payments”, argued John Walker, national chairman, Federation of Small Businesses. “Nearly three quarters of small businesses report that they have been paid late in the past year, placing a huge strain on cash-flow and meaning they struggle to realise ambitions to grow.”
The package will make supply chains more cost effective, secure and effectively boost industry.
This week the Coalition explained they are keen to ensure that SMEs have the widest range of credit options available to them and is taking action on a number of fronts to deliver this. Number ten calls attention to the various funding available, including the Funding for Lending scheme, to encourage banks to boost lending in the UK economy and a new £82.5m Start-Up Loan programme to help young people start their own businesses. By unleashing finance the government can unlock the true potential for many struggling SMEs.
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