The coalition Government’s spasmodic attempts to improve trading conditions for freelancers and small businesses lumbered to life again today, with David Cameron due to announce a new “supply chain finance” scheme, allowing banks to release funds to small suppliers before their clients actually settle their invoice.

Cameron describes the scheme as “win-win”, because the freelancers and small businesses on the receiving end will have better access to finance, while their clients need not worry about their suppliers going under due to lack of payment.

We’ve written at length about freelancers suffering from onerous payment terms from large businesses they are offering services to, and this scheme is designed to assuage those short-term cashflow problems somewhat. Once a supplier issues an invoice, the client will be able to notify the supplier’s bank of their intention to pay up, at which point the bank can advance the balance of the invoice to the supplier (with a small amount of interest on top – how much interest exactly is unknown at this point).

Cameron said of the scheme:

“This Government is determined to back all those businesses who aspire to get ahead and take on more people. In the current climate, viable businesses can struggle to get the finance they need to grow – this scheme will not only help them secure finance and support cash flow, but will help secure supply chains for some of our biggest companies and protect thousands of jobs. It can be a win-win, with large companies and small suppliers both benefiting from this innovative scheme.”

Note use of the word “can” – this is because currently only a few large businesses (notably Vodafone and Rolls Royce) are signed up to the scheme, which has been in pilot. At a meeting today in Downing Street Cameron will attempt to bring other FTSE 100 businesses on board.

Alasdair McGill, Managing Director of invoice finance firm UC Finance, thinks the impact will be positive overall, however notes:

“My reservation is around how the scheme will actually be operated. It’s one thing the banks having an assurance that the invoice will be paid, but there’s no mention of risk analysis (the SME could be in financial trouble – will they still receive funding?) or what documentation will require to be put in place; what guarantees will be sought. As always, the devil will be in the detail…”

Our friends at Safe Collects are even more unenthusiastic!

What do you think of the supply chain finance scheme? Good idea or a waste of time – let us know in the comments!

Photo by Guillaume Paumier