Cameron’s cash-flow plan

23 October 2012
Sadly, my invitation to today’s roundtable on the government’s Supply Chain Finance Scheme seems to have got lost in the post. As a result, I am unable to share with you how the host, prime minister David Cameron, and his idea is received by his guests – a number of senior figures from the UK business world. However, having read the background on what he is proposing – a scheme whereby a supplier gains access to a low-interest loan from a bank once its customer has verified that it will pay them – I can weigh in to some degree. Earlier this year, I attended a different roundtable event on the subject of late payment and I’m pretty confident this idea would have gone down well, at least in principle. One of the main sticking points that repeatedly came up during the discussion was the tug of war between the buyers’ desire to schedule its payment when it was most beneficial and the suppliers need to have certainty of when it would be paid. So far, efforts to resolve the issue have centered on getting companies to commit to processing invoices more quickly. However, while there have been successes, there have also been failures. Just this week, it emerged that Sainsbury’s has extended payment terms with a number of its non-food suppliers from 30 to 75 days. The beauty of Cameron’s scheme is the inclusion of an intermediary, the bank, to release the tension between the buyer and supplier. With this scheme, all three parties benefit. The buyer can verify that it will pay, but delay the actual transaction until it is most advantageous. The supplier can get quick access to its funds without having to sacrifice a percentage (since other invoice financing schemes only pay a proportion of the full value). And the bank can lend to businesses, safe in the knowledge that it will be able to recoup the funds. Today marks the launch of the scheme, so it is too early to tell what impact it will have. But as an idea, it’s really rather well thought out, which already puts it above most of the government’s recent efforts.
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