New Supply Chain Finance Scheme - every little helps, but..

News that a group of 38 major UK companies, including Tesco, GlaxoSmithKline, Marks & Spencer, Diageo, Rolls Royce, BAE Systems, Centrica, and Vodafone, have signed up to the Government’s new supply chain finance scheme aimed at helping improve the flow of working capital for small businesses by piggy-backing on the customer's credit rating is a great step forward, but suppliers to retailers are still under pressure from financing trade credit.....

Implications

• Great initiative in that small/medium suppliers can benefit from the credit rating of larger customers
• But they still have to finance the credit, albeit perhaps not at penal interest rates
• The real issue is retailers taking 45 days+ to pay for goods that are often daily-delivered, with shoppers paying in cash…
• See Cost of credit calculation on Kamcity

Action

1. Work out the actual cost of giving credit to the customer
2. Calculate the incremental sales required to cover cost of free credit i.e. say your net margin is 5%, then every £1,000 it costs to give free credit means you need incremental sales of £20,000 to cover the cost
3. Substitute your figures in the above calculation and book an appointment with the buyer...