Accounting software providers MYOB and Xero are exploring invoice finance solutions while retaliation ensues in the background regarding products that charge fees to small businesses in exchange for faster access to unpaid accounts.
Many of Australia’s largest firms have been questioned regarding their use of “dynamic discounting” supply chain finance, The Sydney Morning Herald reported Sunday (Feb. 2). The practice gives suppliers shorter payment times in exchange for slashing an invoice value.
The scrutiny led both Rio Tinto and Telstra to drop supply chain finance altogether.
MYOB and Xero don’t use supply chain finance, which is one method of reducing payment times for small business invoices.
“It involves bigger businesses offering their suppliers a shorter payment time window often on the proviso that they accept a discount on the invoice amount,” the report stated.
Conversely, invoice financing involves businesses selling their invoices to a third party for a percentage of their value. It’s attractive to lenders because the invoices act as collateral.
Greg Ellis, CEO of MYOB, said the accounting software firm is creating a branded invoice finance product in-house.
Ellis said the platform is still in the works and not yet confirmed but the business has assessed the strength of small businesses that could end up needing invoices paid faster.
“Our ability to credit assess people is probably better than anybody else’s in the market...We’ve seen our customers have been in business for longer,” Ellis said.
“We’re still designing our invoice financing solution,” an MYOB spokesperson told the Sydney Morning Herald. “However, with the knowledge that money flow remains a core pain point for small business, we are working on a product that will have the best interests of small business in mind.”
Ian Boyd, Xero Australia finance industry director, said the company is honing in on integrating third-party apps and isn’t working with supply chain finance providers.
“This category, and its popularity with our small business customers, continues to grow as awareness increases and data and automation boost the value proposition,” Boyd said.
He predicted invoice finance products will replace supply chain finance in the near future.
From supply chain financing to factoring, there are many trade finance solutions available. It can be difficult and confusing for small businesses to understand which is appropriate for their needs.