Keywords: supply chain finance, dynamic discounting, invoicing, e-invoicing, NHSBSA, factoring, reverse factoring

UK Government announces Supply Chain Finance scheme

Sarah Feurey | News | 24 October 2012

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Prime Minister David Cameron has announced that the Government will offer supply chain financing in the first UK Government Supply Chain Finance scheme for community pharmacies in England.

The government estimates this could unlock up to £800m of new credit for around 4,500 pharmacy businesses, many of which are SMEs.

John Walker, National Chairman, Federation of Small Businesses said “The new supply chain finance scheme could help smaller firms in two key areas – improving their working capital and tackling the issue of late payments. 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.”

Community pharmacies dispense around 80 million NHS prescription items every month. They then claim payment from the NHS for the products and services provided.

The amount they are owed is calculated by the NHS Business Services Authority (NHSBSA), but with such high volumes to process, this takes time. Typically, pharmacy contractors receive an estimated 80% of their payment within four weeks of sending their prescriptions to the NHSBSA with the balance being paid the following month. It can therefore take eight weeks before payment is made in full. In the meantime, many pharmacy businesses use commercial loans – which are often expensive – to maintain cash flow.

Using supply chain finance, a bank will make the NHSBSA’s estimated payment available to the pharmacist at around day seven. This means they will have access to money sooner, instead of having to wait for the first payment at the end of the month. For accessing the money early, they will need to pay interest, but it will be at a much lower cost than any borrowing arrangement they could usually access.

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. It can be a win-win, with large companies and small suppliers both benefiting from this innovative scheme.”

The Supply Chain Finance scheme could help reduce this cost of borrowing. Around 4,500 pharmacy businesses will be able to get access to approximately £800m of credit at a much lower cost than they do now. This means pharmacies will have access to cheap finance to help cover their suppliers’ bills.

Walker said, “The FSB welcomes the Government’s commitment to helping small firms secure finance. 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.”