A Melbourne-based finance group has predicted that supply chain finance will become the “funding model of choice” for the majority of small to medium enterprises (SMEs) over the next five years.
However, Fifo Capital has emphasised it is crucial that the reverse factoring funding model is used responsibly as a stimulus for the SME sector rather than as a big business financing tool.
“Reverse factoring works at its best when the supplier uses it at chosen times to fund growth and invest, so the burden and benefit of liquidity can be shared throughout the supply chain,” said Fifo Capital CEO Wayne Morris.
“Getting it right relies on the supplier being in control and maintaining flexibility – it’s intended to create a virtuous circle not further reasons for payment dispute.”
Morris, who helped to establish supply chain finance and invoice finance fintech models in the UK for Jaguar, Land Rover and EDF Energy, believes the model can play “a vital role” in boosting Australia’s SME sector.
“Supply chain finance is a product of today, best used to [help] small businesses release liquidity and underwrite risk,” he said.
“Financial products are developed because supply chains are becoming increasingly complex. Business doesn’t stop at the factory gates anymore, rather it’s dependent on suppliers and partners to come together in a tight working collaboration.”
Fifo Capital’s model depends on paying supplier’s invoices early for a small discount fee. They currently have over 3,000 businesses on their books, with supply chain finance accounting for hundreds and a specialty in SMEs.
