The small business ombudsman has announced a new review that will dig into the impact of supply chain finance, following concerns flagged about so-called reverse factoring by some corporations.
Ombudsman to scrutinise supply chain finance
On Wednesday (30 October), the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) announced the new review to explore the ways in which small businesses and family businesses are able to access supply chain finance to manage their cash flow and future growth.
The ASBFEO will also examine which of these facilities corporate Australia are using to “offset extended payment times”.
It follows the news early this month that the federal opposition had expressed its concerns about reverse factoring, and the impact this is having on SMEs, to the competition regulator.
“Supply chain finance is a legitimate and effective tool to free up cash flow for small and family businesses,” said ombudsman Kate Carnell (pictured).
“However, it is totally unacceptable for big businesses to use supply chain financing arrangements as a replacement for reasonable payment terms being offered, 30 days or less from invoice.
“This review will provide a clearer picture on the range of supply chain finance options available on the market and which industries are using these products.”
According to Ms Carnell, supply chain finance being offered to small businesses by their larger counterparts is becoming increasingly common, and that “we are keen to find out what’s driving that”.
“The review will investigate whether supply chain finance is being used by big business as a means to stretch out formal payment terms and as a strategy to manipulate the reporting of working capital and cash reserves,” she said.
The ASBFEO said that its review into payment times had, through consultations with the corporate sector, uncovered a number of supply chain finance schemes being offered as “an option for earlier payment to suppliers”, and that a number of small businesses have since complained specifically about issues relating to this practice.
A number of specific industry sectors will be examined under the review, with a spokesperson nothing that construction, retail and manufacturing are of particular concern due to them being the primary users of supply chain financing, however any industry in which the practice is in use will be covered by the review.
An interim report is due for release in March 2020, with the full report due by the end of April 2020.