The company invested €1 billion ($1.1 billion USD) into the €2.4 billion GAM-Greensill Supply Chain Fund, run by GAM Holding and Greensill Capital. The fund already holds invoices from many of Vodafone’s 15,000 vendors, which must wait 48 days to be paid by the British phone company, compared to the 36-day global average.
“They are behaving a bit like a hedge fund when they are a telecoms company,” said Stephen Baseby, former associate policy and technical director for The Association of Corporate Treasurers in London. “This is the kind of complexity that more conservative treasurers like me would warn against.”
Vodafone began investing in the fund in 2016, but would not reveal how much investment income has been generated. Instead, the company explained that it invests in a variety of low-risk instruments, noting that it pays its smallest U.K. suppliers within 30 days.
“It is totally up to our suppliers if they decide to utilize supply chain financing, and Vodafone has absolutely no say in it,” Vodafone said in statement. “GAM has a fiduciary duty to select the best risk/return trade receivable assets for the fund. Vodafone has no influence on which assets are selected by the fund manager.”
For Vodafone, utilizing this type of fund allows the firm to classify the money as short-term investments that don’t diminish its cash balance. Yet, while it may benefit the company, the late payments leave suppliers short on cash, something Lorence Nye, a policy advisor for the Federation of Small Businesses (FSB), refers to as “supply chain bullying.”
“Why not pay them on earlier terms if they have the money to invest?” he said. “Larger businesses are incentivized to delay payment or do this for the sake of looking good to shareholders.”
Dominic Capolongo, global head of funding at Atlanta-based PrimeRevenue, said the trend could ruin a company’s long-term association with its suppliers.
“If you’re generating a profit, and the supplier finds out about that, the supplier will say, ‘Why are you generating a profit off me?’ and it will diminish the relationship,” he said.