Fifo stresses need for supply chain finance education

Last week, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, released the final report on the ombudsman’s review into supply chain finance practices.

After finding that larger businesses have used supply chain finance products to alter payment due dates at the expense of smaller businesses, Ms Carnell called for federal legislation to be introduced to protect small businesses against unfair payment practices.

Throughout the review, Ms Carnell highlighted that supply chain financing is, and remains, a “legitimate and effective tool to free up cash flow for small and family business”, but warned that large businesses have utilised these products to enforce extended payment terms on smaller suppliers.

Supply chain finance provider Fifo Capital’s CEO, Wayne Morris, welcomed the release of the ASBFEO’s full report, and Ms Carnell’s recognition of the product as a legitimate option for small businesses.

“The report released by the ASBFEO today is timely in providing much needed clarity and understanding on this alternative finance model so smaller Australian businesses can begin to realise the benefits now, and for years to come,” Mr Morris said.

Mr Morris also echoed Ms Carnell’s sentiment in recognising the important role that supply chain finance can play in improving a small to medium-sized enterprise’s (SMEs) cash flow when utilised appropriately, and could be used to assist small businesses through the COVID-19 pandemic.

“Now more than ever, the role supply chain finance should be playing is as a support for family and SMEs to keep trading without the risk of debt, not as a bullying tactic by big business,” Mr Morris said.

“Supply chain finance was always designed to assist suppliers access early payments on pre-existing terms and provide a financial tool for both buyer and supplier to trade together.”

Mr Morris stated that he predicts this method of finance will be the funding model of choice for small to medium enterprises within five years.

Recognising the benefits of appropriately utilising supply chain financing, Mr Morris stated that proper education on appropriate ways to utilise supply chain finance (SCF) is key, and could be vital for SMEs navigating the economic challenges of COVID-19.

“There’s a role our industry must take on to educate CFOs, accountants and business advisers how the funding model can support SMEs who traditionally find securing working capital finance problematic,” he said.

“We must demonstrate the SCF model’s success starts with suppliers and partners working in collaboration and for mutual benefit – and ultimately it’s the suppliers’ choice when and how they wish to use this type of financing.”

Mr Morris continued: “Supply chain finance should mean a small business does away with debt, underlying risk and the uncertainty of payment. 

“It becomes a cash payment, not a debt or loan, and invoices are paid when they need payment. It should be a game changer for smaller businesses to fuel their growth with cash, not debt,” he concluded.

[Related: ASBFEO welcomes non-banks to government SME scheme]