Opinion

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The Supply Chain Finance Scheme: Hit or miss?

4 Mins

When the government announced its plans for the ‘supply chain finance scheme’ at the end of last month, it certainly got people talking. There seemed to be an almost equal divide between those who welcomed the initiative and those who had their reservations. 

The motivation behind the scheme was certainly positive; by partnering up large enterprises with the smaller companies that make up their supply chain, the initiative promised to help suppliers access credit quickly and at a lower rate. 

In practical terms, the bank is contacted by a large company informing them that an invoice has been approved for payment – enabling the bank to offer a 100 per cent immediate advance to the supplier at lower interest rates, with the security that the invoice will ultimately be paid off by the large company. With impressive figures totalling £20m being pledged – the outlook for the scheme looked promising. 

However, as always, with ‘hyped up’ government initiatives, the scheme was also met with a wall of fierce questioning. In fact, a number of critics believed the scheme was masking the real problem at the core of this issue: late payments.

In response to the scheme, the shadow business secretary, Chuka Umunna, said: “I think late payment by large companies to SME suppliers is a complete outrage and a national scandal. By not paying on time, large firms are forcing small companies to bankroll them – it’s indefensible and it has got to end.”

By making this statement, the shadow business secretary was implying that – in a roundabout way – the scheme was somehow endorsing the inevitability of late payments by large enterprises. 

To an extent, I agree with Umunna’s concerns. Late payments can be the difference between whether or not a small business survives, and this has become increasingly apparent in the face of the uncertain economic climate which has characterised recent years.

Just last year, I remember reading the shocking headline that SMEs were owed £33.6bn in late payments. The research conducted by BACS, revealed that SMEs were individually owed an average of £39,000, and were often waiting for up to two months to receive payment. What was equally worrying was how widespread this problem appeared to be; with half of all UK SMEs, 861,000 firms, experiencing late payments. 

With cashflow lying at the heart of business growth and survival: These statistics were cause for concern, especially given the economic rollercoaster SMEs have already had to ride.

However, in my opinion, this is exactly why the supply chain finance scheme is such a positive move. Although in an ideal world the answer would be to eliminate late payments altogether, until this happens I believe this initiative can help improve the situation. By providing cheap and accessible funding to the supply chain, efficiency is improved and cashflow is boosted. As well as helping the suppliers, the initiative also helps secure entire supply chains for some of the UK’s largest businesses, safeguarding thousands of jobs.

Of course, only time will tell whether this scheme will have the desired results, but I certainly think the intentions should be applauded. It is great to see a scheme which mutually benefits the government, large enterprises and SMEs alike, and I look forward to seeing what the future holds for this scheme; and the supply chain companies which make up such an important part of our economy.

John Antunes is director of SME and Channel at SAP UK and Ireland.

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