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25 October 2012 | Adam Leach
Diageo, Tesco, Jaguar Land Rover and Home Retail Group are among the 38 companies that have signed up tothe supply chain finance initiative launched this week by prime minister David Cameron.
Under the scheme, companies confirm to banks that they will pay supplier invoices and the banks then provide immediate low-interest loans to the suppliers so they have quicker access to finance. Rolls-Royce and Vodafone – both of which have signed up to the government scheme – and Network Rail already operate a supply chain finance initiative with suppliers.
Other companies that agreed to the arrangements following a roundtable hosted by Cameron include BAE Systems, Balfour Beatty, Boeing, BP, British Airways, IBM, O2 and Tata Steel in Europe. Sainsbury’s, which was last week added to the Forum of Private Business' (FPB) ‘Hall of Shame' after it emerged that it was extending its payment terms for some non-food suppliers by 45 days, also signed up.
Robert Downes, a policy adviser at the FPB, welcomed the initiative, but highlighted the importance of the benefits being passed down supply chains. “It’s vital for the big businesses taking part to make sure it goes all the way to the bottom of the supply chain. Those are the smallest businesses that would most benefit from the better credit rating of larger organisations,” he said.
The initiative was also well received by business lobbying group the CBI, although it stressed the need for supply chains to work together on it. Matthew Fell, CBI director for competitive markets, said: “Boosting the use of supply chain finance is an innovative way to ease the funding squeeze for many smaller businesses, but it is dependent on the nature of individual supply chains to work effectively so is not a one-size-fits-all solution.”
John Glen, senior lecturer of economics at Cranfield School of Management and CIPS economist, said the scheme should be welcomed, but that it won’t address the overall problem of SMEs gaining access to funding for growth. He said: “It will help some SMEs and therefore it cannot be ignored. However what we really need is for banks to start supporting the real growth opportunities of SMEs. Unfortunately this is unlikely to happen while banks are still working the financial crisis, European sovereign debt crisis and PPI off their balance sheets."