The Global Supply Chain Finance Forum (GSCFF) issued a statement against what it says is the bullying and misuse of payables finance programs, a report Wednesday (Aug. 26) from Hellenic Shipping News says.
The GSCFF says there have been too-often reports of suppliers forced to accept terms that are not favorable and with a degree of “bullying” toward small- or medium-sized businesses (SMBs). And other instances have concerned financial disclosures.
When appropriately used, the report says, the programs can engender an optimization of working capital. But that isn’t always the case, according to the GSCFF.
The GSCFF reached several conclusions, including that the SMBs shouldn’t be bullied into joining payable finance programs, as it is a “highly concerning” practice that ignores the balance that can be struck for well-structured finance programs. The report said the best of those programs could often “help buyers and therefore assure the health of the overall supply chain, but also provide prompt access to funds for suppliers on an affordable basis, addressing the systemic SME cashflow challenge.”
Suppliers shouldn’t feel an obligation to participate, the report says, as if they don’t need payment urgently, they can go through usual channels and receive payments on their regular due dates.
Negative outcomes from these supply chain finance programs, the report contested, can be avoided by using strong credit analyses of corporate balance sheets before joining one. So there’s no additional liability risk than there would be from any regular buyer and seller relationship.
The report noted that while transparency would be ideal, it also needs procedures to be developed in conjunction with a disclosure from corporates’ finances and coordination with accounting standards bodies. And, the report noted that the COVID-19 pandemic hasn’t necessarily increased supply chain finance risk because banks aren’t quickly withdrawing credit lines.
The group’s report comes after supply chain finance company Greensill warned firms in May not to extend B2B payment terms or risk losing financing.
During the pandemic, the economic volatility has made it more important for corporates and business partners to team up to reduce risk and make transactions flow smoothly.