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Keywords: supply chain finance, dynamic discounting, e-invoicing, factoring, reverse factoring, invoice discounting, invoicing
Sarah Feurey | Article | 24 October 2012
The UK Prime Minister, David Cameron, is encouraging companies to adopt supply chain financing as a means to boost growth in the UK’s SMEs.
The Prime Minister said “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 Government has thrown their support behind supply chain financing schemes, which tackle the issue of expensive finance for suppliers and poor returns on cash reserves for corporations. Supply chain finance helps large companies optimise their working capital and helps their suppliers access credit and improve their cash flow cost effectively.
Traditional financing options for SMEs are generally expensive and include overdrafts, invoice discounting or factoring (where suppliers sell outstanding invoices to a bank and, for a charge, the bank settles those invoices immediately).
With supply chain finance – once an invoice has been approved for payment, a partnering bank is notified by the buyer. The bank then offers a 100% immediate advance to the supplier at lower interest rates, knowing the invoice will ultimately be paid by the large company.
Suppliers get the invoice paid in full, paying a small finance fee, however at much better rates than offered by traditional finance products for SMEs. The supplier can be paid early and the buyer can stretch the day of payment as agreed with the bank to better manage their working capital. In addition, buyers can take advantage of discounts in exchange for early payment on a sliding scale, or dynamic discounting.
The Government estimates that all together leading companies could deliver up to as much as £20bn of new cheaper, finance to their suppliers, including many UK SMEs.
Supply chain financing has already been successfully implemented by companies including Rolls Royce and Vodafone. As a result of the Prime Minister’s meeting with some of the UK’s largest companies, the following companies have agreed to evaluate the implementation of, or continue to offer, Supply Chain Finance.
AB Foods; ASDA; Atos; Babcock International; BAE Systems; Balfour Beatty; Boeing; BP; British Airways; BT; Capgemini; Carillion; Centrica; Dell; Diageo; EDF Energy; Finmeccanica; General Dynamics UK; GKN; GSK; Home Retail Group; HP; IBM; J Sainsbury; Jaguar Land Rover; Kingfisher; Lockheed Martin UK; Marks & Spencer; MBDA; O2; Rolls-Royce; Serco; Siemens; Statoil; Tata Steel in Europe; Tesco; Thales; Vodafone.
The Prime Minister added, “I praise the commitment made by the businesses today and the wider support they provide to their supply chains.
The Prime Minister announced that the Government will offer supply chain finance in the first UK Government Supply Chain Finance scheme for community pharmacies in England. For more information on this development, read our article The UK Government announces the first Government Supply Chain Finance Scheme.
Want more information on supply chain finance?
Hear Vodafone present on supply chain finance at our Accounts Payable Tech and e-Invoicing Summit 2012 on 4-6 December.
View our webinar on how e-invoicing enables supply chain finance.
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