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UK Government promotes national supply chain finance scheme

23 October 2012  |  8172 views  |  1 london big ben

The British Prime Minister David Cameron is supporting a new supply chain finance scheme designed to deliver up to £20 billion in low-cost financing to small businesses.

Under the plan, a bank is notified by a large company that an invoice has been approved for payment; the bank is then able to offer a 100% immediate advance to the supplier at lower interest rates, knowing the invoice will be paid.

The scheme has already been successfully implemented by large companies including Rolls Royce and Vodafone, and is now being pushed by the Government to its own suppliers. The UK Government Supply Chain Finance scheme for community pharmacies in England is looking to unlock up to £800m of new credit for around 4,500 pharmacy businesses.

Says Cameron: "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."

The initiative has won the backing of the Federation of Small Businesses. John Walker, natiobnal chairman of the FSB, says: "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. We encourage large companies to support and implement the scheme, so that it can play its part in improving confidence and encouraging growth throughout the supply chain."

Recent research by alternative finance provider Platform Black shows that eight out of 10 SMEs found it hard to keep on top of cash-flow in the past year, with most blaming banks' reluctance to offer credit as the main reason for cash shortfalls.

Christopher Shaw, Platform Black CEO, remarks that growing numbers of businesses are exploring alternative sources of finance, like invoice trading - in which suppliers borrow against unpaid invoices.

"The Prime Minister's initiative is both a recognition of the value of that model, and a huge shot in its arm," he says. "By validating their outstanding invoices, the debtor companies will allow their suppliers to borrow against them more easily. The scheme's effect will be indirect but crucial - and if it allows suppliers better access to credit it will play an important role in kickstarting the economy."

Comments: (1)

A Finextra member
A Finextra member | 23 October, 2012, 21:16

How does David Cameron know it will be low-cost? In fact what does he know about the subject at all? (Probably enough to be Governor of the Bank of England, judging by who else is on PaddyPower's list).

These schemes rely on banks pricing the loan to the "little firm" at the "big firm" rate whilst not plotting the Contingent Liability as Guarantor credit exposure onto the "big firm": otherwise it blocks the "big firm's" lines.

And what does an invoice approval signify? It doesn't mean the "big firm" has the money to pay, and nor does it convert the invoice into a liquidated debt: it remains unliquidated and subject to the lengthy process to get a County Court Order, winding-up petition etc..

This looks like another still-born industry initiative. I'm hearing Orbian, ePayments+, EBA STEP3 and other skeletons rattling in the cupboard. On the other hand it would work if the debt was evidenced on a Bill of Exchange which in turn could be re-discounted at the Bank of England - oh no sorry we scrapped that scheme - the Eligible Bill Discount Facility. So this must be more a re-spray of eLeanor coming out just in time for SIBOS (no sorry that's called BPO, isn't it?)

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