The UK was one of the first countries to roll out a supply chain finance initiative to help small, local businesses get paid earlier at attractive terms. At the end of 2009, the Bank of England asked UK stakeholders to form a working group to review the supply chain finance market.
In October 2012, David Cameron, The Prime Minister, met with the leaders of some of the UK’s largest companies at 10 Downing Street to discuss the important role they play in supporting their supply chains. The findings of this research and discussion stood at the basis of David Cameron’s public speech.
The UK government understands that this is a major step in protecting jobs and boosting growth, particularly for SMEs, crucial to helping the economy compete in the global race. The government states that, based on the supply chain finance scheme, leading companies could deliver up to as much as £20 billion of additional funding to their UK suppliers.
Goals of the Supply Chain Finance Scheme
Greater Liquidity in the Marketplace
In the current business climate, companies struggle to get sufficient financing to grow their business. The goal of this scheme is not only to help them secure financing and get paid earlier, but also secures the supply chains of the UK’s biggest companies and protect thousands of jobs.
Most UK based corporates with strong credit ratings have access to adequate and cheap funding options. However, this contrasts with their SME supplying counter parts, which in most cases have higher costs of financing, and limited access to capital.
Supply chain finance overcomes these challenges by offering early payments to UK suppliers at attractive terms, based on the credit worthiness of their customers. With such a financing solution, the supplier is notified by the corporate that an invoice has been approved for payment. Based on this approval, the funder provides the option to the supplier through a web-based platform to immediately advance the full invoice amount minus a small discount advance to the supplier. The discount or interest rate is very attractive and only based on the buyer’s credit rating.
The key target of the supply chain finance scheme is to grow the UK economy by injecting liquidity into the market place and promoting such solutions with large corporates. As a result of their discussions, many companies have agreed to support by actively evaluating the implementation of supply chain finance such as: Atos, BAE Systems, Kingfisher, Sainsbury’s, Rolls-Royce, Tesco, etc.
From Challenge to Opportunity
How Supply Chain Finance Solutions Can Transform the Landscape for Small Businesses
£151 billion is the amount that lending to businesses declined last year making it more expensive than ever for small businesses to invest in growth.
£190 billion represents the predicted funding shortfall to small businesses, caused by regulations that force banks to reduce the size of their loan books.
£30 billion is the estimated amount owed to UK small businesses in late payments, clearly representing a nationwide problem.
Why support the initiative?
Today, there are many supply chain finance programs being implemented and offered to suppliers in the UK.
Leading organizations in all major sectors such as automotive, retail, food and beverage, pharmaceuticals, and aerospace have started their own supplier financing initiative to support their key suppliers. In addition, leading specialist service providers and funders are supporting such programs with state-of-the-art supply chain finance solutions and adequate financing.
Consider the benefits
Benefits for the Buyer
Reduce risks in the supply chain
Option to capture discounts on early payments through self-funding
Improve working capital through third-party funding
Enhance relationships with suppliers
Benefits for the Supplier
Meet cash flow needs at attractive funding rates
Improve working capital by getting paid earlier
Reduce need for external lending