UK Mining Firm Ditches SMB Reverse Factoring

With mounting pressure from small and medium-sized businesses (SMBs) as well as the media and politicians, U.K.-headquartered mining firm Rio Tinto is ditching its reverse factoring initiative, according to reports on Wednesday (Jan. 29).

“After review, Rio Tinto will no longer offer this accelerated payment option and will work on transition arrangements for those suppliers, representing about 3 percent of Rio Tinto’s 10,000 Australian suppliers, that had selected the option,” the company said in a press release.

The scheme cut invoices by about 2 percent if a supplier wants to be paid earlier than 30 days, which in turn freed up millions for Rio Tinto.

“Our suppliers are vital to our business success and we will continue to work to improve our partnerships with them. A supply chain of strong local suppliers is good for our business, good for local communities and good for the economy,” Rio Tinto Chief Commercial Officer Simon Trott said in the release. 

Rio Tinto launched the reverse factoring payments scheme last year with Silicon Valley’s FinTech Taulia. Taulia then brokered allowances for suppliers who wanted to be paid within 30 days.

Australian Small Business Ombudsman Kate Carnell is against the scheme, saying it creates a situation that relies on a supplier’s drive or need to safeguard cash flow.

“This shouldn’t be that complex. Businesses should just do it [pay their suppliers within 30 days]. And they shouldn’t be using these sorts of products — reverse factoring products and even worse using AI [artificial intelligence] because then you don’t even have a standard product. You’ve got a product that varies based upon how desperate your supplier is — how ordinary is that?” Carnell said.

The Australian Competition and Consumer Commission said it was “examining allegations about certain payment terms, and whether they raise concerns under Australia’s competition and consumer laws.”

Rio Tinto said procurement practices “help sustain many Australian businesses.” The company said that Aboriginal businesses are “offered favorable terms.”

Telstra also came under scrutiny this week for its use of reverse factoring. Like Rio Tinto, Telstra partnered with San Francisco FinTech Taulia.