Aussie Telecom’s Supply Chain Financing Criticized

Australian telecommunications giant Telstra neglected to tell its smaller suppliers in a timely manner that they would be moved to supply chain financing, The Australian reported on Tuesday (Jan. 28). Telstra teamed with Silicon Valley supply chain FinTech Taulia to “bolster its cash flow at the expense of its suppliers.”

Telstra gave its suppliers just 30 days to respond, even though the change was reportedly a year in the making, the article said. The company started changing the terms for its smaller suppliers in February of 2019, following a staged launch with its bigger suppliers.

Payment terms were changed from 45 days to 62 days, but could be as long as 90 days in some cases. George Papanikolopoulos, Telstra’s general manager of procurement, allegedly bragged in a promotional video that the move would improve the company’s bottom line by more than $500 million. He said Telstra spent two years studying ways to push back its payment terms “with a single-minded approach.”

“It’s been almost a year since implementation, in terms of technology implemented in our system and enabling the conversation with our suppliers to extend payment terms,” he said. “We’ve had that first taste of success as to what the outcomes start to look like. We’re sort of really at the beginning of the proper journey.”

He added, “We’ve done the climb to the top of the slope, so now we can see the expanse of the ski field in front of us in terms of all these opportunities.”

Taulia uses artificial intelligence (AI) and Big Data to devise rates that suppliers can afford. The “low-cost” option works out to an annual rate of just more than 7 percent.

One supplier told The Australian that it “could not afford to wait 62 days from the end of the month for payment, and had little choice but to take a 7.5 percent annualized hit to their invoices,” adding that “the core problem is the supplier payment terms. If you had a reasonable supplier payment term, then you wouldn’t need supply chain financing.”

Small Business and Family Enterprise Ombudsman Kate Carnell and the Australian Competition & Consumer Commission are examining Telstra’s use of supply chain financing — also known as reverse factoring. Supply chain financing allowed Telstra to shift $591 million in unpaid bills from the “trade payables” line in its 2018-2019 financial statements to “other payables” — $551 million more than the previous fiscal year.

A Telstra spokesman told The Australian that supplier feedback was positive, saying it was “a simple, safe and low-cost way to manage their cash flow.”

The U.S. Securities and Exchange Commission (SEC) expressed concern last month about the lack of transparency, as more businesses use supply chain financing. U.S. businesses are being asked to disclose their supply chain financing arrangements in their Management’s Discussion and Analysis section of financial statements.