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Supply chain scheme warning

A Shropshire accountant has warned that a new Government-backed supply chain finance scheme may not be as straightforward as it seems.

Mark Bramall, from Dyke Yaxley Chartered Accountants, in Shrewsbury, welcomed the initiative that encourages large blue-chip companies to offer more and cheaper finance options to their SME suppliers.

But he said local SMEs would need to a have clear understanding of the small print of the plan if they were to maximise the benefits it offered.

"Despite the way the Government's annnouncement was phrased, this does not mean that small businesses with blue chip customers will automatically receive a cheap loan or overdraft for the value of their invoices when they're approved.

"I believe the new scheme was designed to encourage larger corporates to use finance already in place at HSBC and other mainstream banks, known as Receivables Trade Finance.

"This is a credit facility secured on the large company's own balance sheet, which is likely to be healthier and less risky than the balance sheet of a typical small business.

"The large corporate will then choose which of their small business suppliers they want to invite to use the system, and arrange for their own bank to implement an invoice finance facility for that supplier.

"The key point though is that the whole process is controlled by the large corporate business and their bank, so the scheme is not quite as straightforward as it may have first seemed."

Mark said small businesses with blue chip customers looking to maximise their working capital facilities must pay attention to the finer details of the process.

"Ensure you have good credit control procedures and follow your debt collection processes rigidly for all customers - no matter what their size.

"Ask your blue chip customers if they have access to Supply Chain finance or Receivables Finance products and whether you can use the system.

"And if you don't already have invoice discounting in place, you should definitely consider it if your overdraft does not cover your needs - but get professional advice as facilities vary greatly and you need to find the right one for your business."

Dyke Yaxley's Mark Bramall