“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,” says Australian Small Business and Family Enterprise ombudsman Kate Carnell.
Carnell suggests these reverse factoring practices are unfair to small business owners and allows big companies to manipulate their suppliers. The ombudsman is putting them on notice and says the practice will be examined as part of her Review of Supply Chain Financing.
“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. It’s clearly not OK for big businesses to use their dominant position and access to technology to further squeeze small business margins,” Carnell said.
“Unfortunately the only way to level the playing field is through further regulation and legislation, which means more red tape.
While the ombudsman agrees that supply chain finance can be a legitimate and effective tool to free-up cash flow for small and family businesses, she says it should NEVER be a replacement for reasonable payment terms.
“It is imperative small businesses are paid on time. We know that late payments equate to a $7 billion drag on the economy,” Carnell said.
Since the Review launch in November 2019, a wide-ranging consultation process has been underway with large businesses, small businesses, and supply chain finance providers.
Small businesses and family enterprises who have had experience with supply chain financing can still contribute to the Ombudsman’s review via email@example.com
An interim report is expected to be released by the Ombudsman in March, followed by a full report by the end of April.
Read more stories on how the ombudsman has been assisting small business.