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07 February 2020

Ombudsman releases Supply Chain Financing Review position paper

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has released a position paper outlining the key preliminary findings of the Supply Chain Financing Review.

The position paper details ASBFEO’s findings and makes a suite of draft recommendations to be finalised before a full report is handed down at the end of March.

“Supply chain finance is a legitimate and effective tool that can be used to free-up cash flow for small and family businesses,” Ms Carnell says.

“However our Review has found that too many big businesses have extended payment times and then offered supply chain finance. This practice severely impacts small business suppliers and is totally unacceptable.

“A key finding in our position paper is the definition of a small business continues to be a major blockage, and a unified approach would be beneficial to small businesses.

“There are too many small businesses that have to wait too long to get paid. This is in part, because the definition of small business is wide open to manipulation under the Supplier Payment Code.

“Even putting aside the issue of manipulation, the Supplier Payment Code is voluntary. There is no compliance monitoring and it’s actually unenforceable.

“That’s why we have made a draft recommendation the Payment Times Reporting Framework replace the Supplier Payment Code. This should be enforced by an appropriately funded and proactive entity.

“The fact is that all businesses, regardless of their size should be paid in 30 days and supply chain finance should be available to those small businesses that want to be paid faster.

“Rates should be set across markets and not through the use of technology aimed at targeting and squeezing small business suppliers, including those already in distress.

“The question of regulation remains live, and we’ve made a draft recommendation that further consideration be given to whether Supply Chain Finance should be a regulated financial product.”

Since the Review launch in November 2019, a wide-ranging consultation process has been underway with large businesses, small business and supply chain finance providers. That process is ongoing and we welcome further input. Contributions to the Review can still be made via inquiries@asbfeo.gov.au