Supply Chain “Financing”, or Using Suppliers as a Bank?


Supply Chain “Financing”, or Using Suppliers as a Bank?

Supply chain “financing”, or using suppliers as a bank? 

We are all well aware by now that one of the main causes of cash flow starvation for small businesses is that their invoices don’t get paid on time. (Australia is the world record holder for late payments).

It is also no secret that some of Australia’s largest companies and institutions add insult to injury by imposing “standard” payment terms of 45, 60 or even up to 120 days. And then they pay the invoice late anyway. (Companies with more than 500 employees pay, on average, 14.4 days after the due date. That’s almost 50% longer than the Australian average).

The Big Business Solution to a Small Business Problem

Small Businesses have been actively and vocally seeking a remedy to this situation for years. One solution offered by some of our biggest companies is ingenious. 

They will pay you early – provided you will accept a discount.

This is called Supply Chain Financing, and it does have a legitimate place in keeping the wheels of commerce moving. Supply Chain financing can be a lifeline for a Small Business, allowing it to access funds earlier so they can order more stock to sell …

It is not, however, an acceptable alternative to paying suppliers within a reasonable time frame – like 30 days. 

How Supply Chain financing works

This is the process:

  1. Big Buyer places an order with the Small Supplier
  2. Small Supplier sends an Invoice to the Big Business
  3. Big Buyer sends an Invoice copy to the Finance Company
  4. Finance Company pays the Small Supplier early, but with fees deducted
  5. Finance Company pays the Big Buyer

Note:  The Finance Company is often an affiliate or subsidiary of the Big Buyer

Supply Chain Finance and Payment Terms are close relatives

I’ve referred in several of my articles to the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) inquiry into payment times. It will come as no surprise that the use of Supply Chain Finance raised its head frequently during that inquiry.

So much so that the ASBFEO’s office has launched a second inquiry – this time focusing specifically on how larger businesses use supply chain finance to offset extended payment times.

Kate Carnell, the Ombudsman, puts it this way. 

“It’s ‘you can get paid on time’ — but you’re supposed to be paid on time, without a discount.”

An opportunity to have your say

As with the Payment Times Inquiry, the ASBFEO is eager to hear the experiences of all Small Businesses – both good and bad. As I noted earlier, Supply Chain Financing can be a valuable cash flow management tool. But it can also be used as a means of bridging the gap between what would be accepted as normal payment times and the actual payment times used by many large organisations.

Having your voice heard is easy. Write down your thoughts and experiences (Kate Carnell does not require an extended and beautifully presented submission), and email it to

This payment times stuff is a long battle. Small Business owners need to engage at every possible opportunity if we are to eventually get some real results.

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