A New Method of Invoice Financing

The government’s Supply Chain Finance Scheme (SCFS), announced by the Prime Minister last month, has had a mixed reception. The scheme provides that, if you send an invoice to a large corporation, the recipient can respond with a promissory note informing your bank that they intend to pay it. You can then draw on the amount promised from your account, but you will have to pay interest on it until the money comes in, albeit a smaller amount than on other types of loan.

SCFS has been quietly piloted and among the first major companies to sign up for it were Vodafone and Rolls Royce. In his announcement, David Cameron 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.’

A Positive Reception from the Federation of Small Businesses

Chairman John Walker’s response was ‘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.’

On the Other Side of the Fence

Some critics say it’s a way of enforcing invoice financing on small businesses. Everyone knows that small businesses can charge interest on late payments, but they don’t because they want to keep their customers. In this scheme, instead of charging interest, you’ll be paying it on the money you are owed, while big business can legitimately ignore your terms and pay you when they like.

Sitting on the Fence

Some who already operate in the invoice financing industry are undecided but cynical, wondering about the detail: the amount of interest, the documentation; the guarantees; dealing with the risk; and so on.

Matthew Fell of the CBI said, ‘Boosting the use of supply chain finance is an innovative way to ease the funding squeeze for many smaller businesses, but it is dependent on the nature of individual supply chains to work effectively so is not a one size fits all solution.’

Why not discuss your cash-flow problems with your outsourced bookkeeper before you decide to borrow from the bank in this way?

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