Supply chain financier Greensill threatens to dump clients over payment terms

Global financier Greensill has promised to ditch customers that are dudding their small business suppliers on payment terms.

Billionaire global financier, Lex Greensill. Picture: supplied.

Billionaire global financier Lex Greensill has moved to distance himself and his $US4bn ($5.95bn) empire from companies that use supplier payday lending schemes to blow out payment terms.

Mr Greensill has doubled down on his threat to dump clients who squeeze their smaller and medium-sized suppliers, stating his London-based Greensill group would not do business with any company that pushes out payment terms beyond 30 days.

“We will not let our SCF (supply chain finance) clients push out payment terms to SME suppliers beyond 30 days. If they want to do that, we will not do business with them,” Mr Greensill said on Friday.

Mr Greensill’s comments put further pressure on CIMIC -- Australia’s biggest construction company and a Greensill client -- to reconsider its payment terms which it extended from 45 to 65 days last year.

CIMIC’s payment terms and use of supply chain finance sparked the ire of key crossbench Senator Rex Patrick, who said the company was breachining its social licence because it was treating its small business suppliers as a bank.

His comments came after one of his clients, Australia’s biggest construction company CIMIC, sparked the ire of key crossbench Senator Rex Patrick, who said the CIMIC was breaching its social licence because it was treating its small business suppliers as a bank.

CIMIC — which this week posted a writedown-marred $1bn loss in the year to the end of December — extended its payment terms from 45 to 65 days in September. At the same time it unleashed a payday-lending scheme — offered through Greensill — on suppliers who wanted to be paid earlier.

CIMIC announced the scheme to its suppliers in a mass email, with all recipients — which included companies ranging from legal to engineering firms — disclosed to one another, starting the email with “Der (sic) valued supplier …”

“They (CIMIC and its subsidiaries) should not be treating subcontractors and mum-and-dad families as banks,” Senator Patrick told The Australian, adding he was seeking to fast-track legislation that forces companies with government contracts to adopt 20-day payment terms.

Telstra, another one of Greensill’s clients, slashed its payment terms from 62 to 20 days this week after its ditched its supply chain financing scheme following community outrage and political pressure.

Rio Tinto also scrapped its so called ‘dynamic discounting’ scheme and cut its payment terms to 20 days, after The Australian revealed it had partnered with Taulia – a company registered in the low-taxing US state of Delaware — to discount the invoices of its suppliers who wanted to be paid earlier than 30 days.

A Greensill spokesman said last week that Taulia was “one of the many platform provider business partners we work with”.

Data for discounting

The Australian revealed Taulia used invoice and market data as well as artificial intelligence to calculate how willing a supplier would be to cut their invoices in exchange for early payment and the financial hit they could take. The Greensill spokesman said while Greensill used data to calculate finance rates, it did not recognise Taulia’s practice.

“That is not how Greensill uses data, and it is not a practice we recognise. Greensill uses data to provide finance at the lowest possible rates to all its customers, including SMEs. Providing the lowest cost finance to SMEs is at the core of everything we do,” he said.

Telstra and Rio’s dumping of supply chain financing schemes, come as the $US4bn ($5.95bn) Greensill group has been considering a sharemarket float in the year ahead.

Small Business Ombudsman Kate Carnell rel­eased the key findings of her Supply Chain Financing Review on Friday. The review recommended the government legislate payment terms as early as this autumn as part of its Payment Times Reporting Framework.

Ms Carnell said while supply-chain financing could be an effective tool to free up cash flow for small businesses, too many big businesses were using it in conjunction with extending payment terms, which left their suppliers with little choice but to use such schemes.

“Our review has found that too many big businesses have extended payment times and then offered supply chain finance. This practice severely impacts small-business suppliers and is totally unacceptable,” Ms Carnell said.

“The question of regulation remains live, and we’ve made a draft recommendation that further consideration be given to whether supply-chain finance should be a regulated financial product.”

The government is planning to implement the 20-day payment policy in late 2021, according to internal government documents seen by The Australian.

A spokesman for Small Business Minister Michaelia Cash confirmed the government was progressing with that policy.

But Shadow Employment and Industry Minister Brendan O’Connor said the decisions by Telstra, Rio and now Greensill should prompt the government to bring forward that legislation.

“Federal Labor welcomes the decision by Greensill to stop providing its supply chain financing services to companies that deliberately use it to push out 30-day payment time,” Mr O’Connor said.

“In a clear contrast, the Morrison government has been completely absent on the issue of ‘reverse factoring’ – a form of supply chain financing where small businesses pay a fee to be paid on time and which has been detrimental to many small businesses.

“It is telling that at no stage has Senator Cash ever condemned or committed to action on reverse factoring and have dropped the ball on their announcement 18 months ago that they would require big business to have a 20-day payment time to small business in order to get government contracts.”