Warning issued over supply chain finance mining

Last year, the ASBFEO launched a review into supply chain financing, as part of a move to ascertain how small businesses and the family enterprise sector use this form of finance to manage growth, and examine ways in which the products may have been abused by large companies.

For example, it will review whether big businesses use supply chain finance as a means to offset extended payment times.

At the time of the announcement, Ms Carnell labelled the practices used by big companies to abuse the system to the detriment of small-business suppliers as “totally unacceptable”.

Since the review launched, reports have now surfaced that some big businesses have been using supply chain finance platforms and utilising methods – including data mining – to alter the price of services, based on what it is believed the supplier might be willing to accept.

“Recent reports of big businesses using supply chain finance platforms that use artificial intelligence to calculate the discount a supplier may be willing to accept are disturbing,” Ms Carnell said.

“These types of reverse factoring products that vary based on how desperate the supplier is are being closely looked at as part of our ongoing Supply Chain Financing Review.

“Small businesses have raised their concerns with my office about the use of artificial intelligence and big data to determine and target discounts,” she said.

In light of the prevalence of this practice, Ms Carnell warned that these businesses should be prepared for upcoming tighter regulation following the release of the review.

“It’s clearly not OK for big businesses to use their dominant position and access to technology to further squeeze small-business margins.

“Unfortunately, the only way to level the playing field is through further regulation and legislation, which means more red tape,” she said.

The ASBFEO concluded: “Supply chain finance can be a legitimate and effective tool to free up cash flow for small and family businesses. However, it should never ever be a replacement for reasonable payment terms being offered, 30 days or less from invoice.

“It is imperative small businesses are paid on time. We know that late payments equate to a $7 billion drag on the economy.”

The consultation process for the review is still underway for large businesses, small businesses and supply chain finance providers.

An initial report on the reviews findings is expected to be completed by the Ombudsman by March 2020, with a full report to be released in April 2020.

[Related: Debate wages over misuse of supply chain financing]