Reports that suppliers are being forced into accepting unfavourable terms under supply chain finance (SCF) deals are “extremely worrying”, according to an industry body.
But in a report the Global Supply Chain Finance Forum (GSCFF) said such incidents were “isolated and uncommon” and “not representative of how payables finance programmes are used by the majority of buyers and sellers in mutually supportive supply chains”.
The report followed criticism of SCF from the Australian small business and family enterprise ombudsman, Kate Carnell, who said in March following a review that there were cases of large firms extending payment terms and “pushing” SCF onto suppliers.
In August the ombudsman welcomed a move by SCF provider Greensill to cut ties with clients who failed to comply with 30-day payment terms. “There is no reason why other supply chain finance providers can’t do the same,” said Carnell.
Under SCF a buyer pays an invoice under their normal payment terms to a bank or SCF provider, who in turn offers the value of the invoice as a loan to the supplier before the invoice is paid. The terms of the loan are based on the credit-worthiness of the buyer, which means it is cheaper than a loan or overdraft for the supplier and they are paid more quickly.
“We know there are large companies extending their payment terms to 60 or more days from the end of month the invoice is lodged and offering supply chain finance to those that want to be paid earlier and are willing to take a discount on the invoiced amount,” said Carnell.
In their report the GSCFF, which includes the International Chamber of Commerce and the Bankers Association for Finance and Trade, said: “It is the abuse of such programmes and the abuse of market power that can sometimes lead to a bullying dynamic.
“While such instances regrettably exist, this is not a widespread practice and it is most certainly not best practice. Payables finance programmes should be used appropriately and, when they are, can become an important financing tool for corporate treasurers and the SME supplier community.”
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