The Australian government has launched an investigation into the supply chain finance market and the impact of the financing tool on small business payments and cash flow.
Reports in The Advisor on Thursday (Oct. 31) said Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has opened a review into supply chain finance and its impact on small to medium-sized businesses (SMBs).
According to the publication, Carnell will look into both how supply chain finance can help SMBs manage cash flow, as well as how it may adversely lengthen large corporates' payment terms to small suppliers. The probe follows reports of small businesses contacting the ASBFEO with concerns related to supply chain financing.
“Supply chain finance is a legitimate and effective tool to free up cash flow for small and family businesses," Carnell said in a statement. “However, it is totally unacceptable for big businesses to use supply chain financing arrangements as a replacement for reasonable payment terms being offered, 30 days or less from invoice.”
Carnell added that she is encouraging small businesses to continue reaching out to the ASBFEO and contribute to the government's review of the market.
“This review will provide a clearer picture on the range of supply chain finance options available on the market and which industries are using these products,” she said. “More large businesses are offering supply chain finance to small businesses, and we are keen to find out what's driving that.”
Reports said the review will also explore whether large corporates are “manipulating” the supply chain financing model, as the publication said. Carnell explained that the investigation will look into “whether supply chain finance is being used by big business as a means to stretch out formal payment terms and as a strategy to manipulate the reporting of working capital and cash reserves.”
Corporate reporting of supply chain finance has fallen under scrutiny in recent years, with analysts at Moody's and others suggesting that the finance tool should be classified as debt in corporate financials.