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Win-Win Supply Chain Finance?

This week we have seen the government’s efforts to make funding easier for small businesses once more spring to life – a new ‘win-win’ invoice finance scheme for small businesses and freelancers has been announced. This ‘supply chain finance scheme’ will allow banks to release funds to small suppliers before their clients have settled their invoices – but will it really be effective?

David Cameron has described this scheme as ‘win-win’, a phrase rarely used recently in connection with small business finance. Freelancers and small businesses will have better access to finance, and their clients will not need to worry about suppliers going bust due to lack of payment.

These supply chain issues can create big problems for small businesses. When supplying goods or services to large corporations, often SMEs are squeezed into long payment terms and don’t have the leverage to broker a more favourable deal. They are then left hanging on for payment while their own suppliers are needing to be paid as well. This creates a vicious cycle down the chain, leading to big cash flow problems for many businesses.

The Prime Minister has commented; ‘The Government is determined to back all those businesses who aspire to get ahead… 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. It can be win-win, with large companies and small suppliers both benefiting from this innovative scheme.”

Though only a handful of large businesses are currently signed up to the scheme – including Vodaphone and Rolls Royce – there is hope it will eventually include more FTSE100 companies. So, will this benefit small as well as large businesses in the UK?

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