Reverse factoring a potential finance future for SMEs

Following on from comments made by the Minister for Employment, Skills, Small and Family Business, Michaela Cash last month at the supplementary estimates hearing on the ASBFEO’s probe into late payment times for small business, and, the ASBFEO’s announcement back on 24 October of a review into the impact of supply chain finance on the small business and facility enterprise sector, we are calling for a re-think on supply chain finance, or reverse factoring, all together.

As part of well-established business financier who are specialists in invoice, trade and supply chain finance in Australia, we are strongly of the view the claims saying reverse factoring is an invalid and risky form of business finance are simply untrue.

On the contrary, we are of firm belief supply chain finance will help underwrite the majority of small to medium enterprises in the coming five years.

Supply Chain Finance is a product of today, releasing liquidity for millions of small companies and underwriting risk in a new and innovate way, it’s time for a re-think.

Supply chain finance should be seen as a stimulant for SMEs rather than controversial, which when done right, removes debt for the small and medium

sized business, whilst allowing them and their larger clients to trade on the terms they want or need for their business without being at the detriment of either party.

Financial products are developed because supply chains are becoming increasingly complex. Businesses aren’t confined to the factory gates anymore, rather they’re dependent on a network of suppliers and partners to come together in a tight, working collaboration.

Put simply, cash is the glue that holds supply chains together and supply chain finance is best used to help avoid small businesses waiting around to be paid by big business.

Supply Chain Finance is a proven strong financial instrument, used best when it’s able to cascade down multiple levels of the supply chain so the burden and benefit of liquidity can be shared throughout.

Get it right and what looked like a fractious circle based on payment term dispute, now looks more like a virtuous circle. The subcontractor has certainty of payment without risk and the lead contractor will attract the best trades because of it.

Wayne Morris, Director, Fifo Capital

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