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Supply chain finance scheme – invoice finance help for small companies

The latest in series of Government initiatives aimed at boosting small firms will enable banks to advance the value of outstanding invoices owed by larger firms – in a type of ‘invoice finance’ arrangement.

Under the ‘Supply Chain Finance’ arrangement, banks are informed when larger companies have approved an outstanding invoice for payment to a smaller firm, enabling the bank for forward 100% of the invoice value immediately – at a low rate of interest.

This is similar to the invoice finance model, but with 100% of the outstanding invoice amount being payable, as the banks can be certain that the invoice will be settled by the large firm.

The Government says that the scheme could provide up to £20bn in additional funding for smaller firms.

Many large companies have pledged their commitment to the scheme, including Asda, British Airways, BT, GSK, Kingfisher and Rolls-Royce.

The Supply Chain Finance scheme announcement has been welcomed by several leading business groups, including the FSB which highlights the cash flow benefits the new scheme could have for small firms, many of which are plagued by late payment problems.

The Prime Minister said that the initiative “can be a win-win, with large companies and small suppliers both benefiting from this innovative scheme.”

Although some recent Government announcements, such as the ‘shares for rights’ proposal, have been derided by industry commentators, a number do appear to have a more realistic chance of benefiting small companies – such as the Start-Up Loans scheme for young people, and the Enterprise Finance Guarantee scheme.