A CFO provides his perspective on the question of supply chain finance in the public sector

Posted on February 25, 2011

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A funny thing happened on the way to writing Part 2 of the planned series on Supply Chain Finance . . . a debate broke out.

Of course I would prefer a good debate any day over the monologue associated with a single discourse.

It is in this spirit of conversational exchange, that I am pleased to share the following e-mail from David Elliot who is the Chief Financial Officer for SaaS vendor Elcom.  As always, I more than welcome your feedback on what Mr. Elliot has to say.

I read with some interest the recent posts concerning supply chain finance.

We deal with government and have one particular government client that has effectively enabled SME’s, the effect of which has been to support and grow their local economy, with whom we are now in discussions regarding the next stage in enabling their supply base.  Included as key elements of this next phase is simplifying the tender process and incorporating payment terms including supply chain finance.

While I agree with the majority of comments – in particular those posted by Stephanie Drilling (see attached link for many similar sentiments in the UK which are posted in response to a question by Mark Prisk, Minister Business & Enterprise in the UK, http://www.linkedin.com/answers/startups-small-businesses/small-business/STR_SMB/745066-91787247?split_page=1),  I am also of the opinion that one of the primary issues facing businesses, particularly SME’s, is the lack of access to growth capital.

I previously worked for a large corporate who operated a franchise business model and the franchises included a number of start up’s and SME’s.  As a result, one of the things we did with our banking partners was work with them to enable them to fund a much higher percentage of receivables (in some instances up to 100%) than they normally would, on the basis that the banks were confident that our debts (the large corporate had a strong credit rating) would be paid.

One of the key issues facing banks is that they need a view into the supply chain to enable them to lend and the traditional methods available to them such as reviewing accounting information, which is normally a minimum of 6 – 12 months out of date, is not sufficient.

Government has the ability, due to its position as the single largest purchaser of goods and services, to facilitate better lending conditions for suppliers by working with the banks to provide a platform in which the banks could effectively provide the necessary working capital much earlier in the cycle.

This would require Government and the banks to work together much more closely, however I believe that the benefits of this are huge.

David Elliott

Chief Financial Officer, Elcom

United Kingdom

Suffice to say, even with those who are not inclined towards pursuing a public sector supply chain finance program, it is very hard to argue with the key elements of Mr. Elliott’s points.  What do you think?

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