Prime Minister David Cameron will today tell 40 large UK companies to assist their suppliers gain access to credit as to help boost lending in the economy.
David Cameron is expected to hold a meeting at Downing Street this morning with of about 40 companies and suggest they sign up to the Supply Chain Finance initiative.
Details released to the media by Mr Cameron’s office show the plans requires the ‘top tier’ company buying goods or services to notify its supplier’s bank that invoices have been approved for payment.
In a form of supply chain invoice financing, the supplier can then borrow against those invoices.
As much as £20 billion of cheaper finance could be released, according to the PM’s office.
The Department for Business, Innovation and Skills chose banking as one of the five pillars in its industrial strategy for the UK, launched last month. Business Secretary Vince Cable admitted that regular, simple access to finance for small and medium-sized companies was one of the main factors holding the economy back.
He acknowledged that large banks are trying to reduce their exposure to risks and were reluctant to lend against commercial property, and proposed more competition by opening the way for ‘challenger banks’ such as Aldermore and the Co-operative Bank to provide better lending terms.
According to the press statement reported by Bloomberg, the Government wants to adopt the Supply Chain Finance system itself, starting with pharmacies who supply medicines on behalf of the NHS.
Manufacturers’ organisation EEF welcomed the move. “A lack of working capital and finance for investment have created problems at multiple points in the supply chain,” said Steve Radley, director of policy. “The government’s recent review of alternatives to bank finance for SMEs has helped to push forward a useful dialogue on how large companies can make use of financing solutions to increase the flow of working capital to their suppliers.
He added: “However, these arrangements can be complex and not easily transmitted right down the supply chain, where credit constraints may be most acute. Policy makers must also recognise that longer term finance for growth is a separate, but equally pressing issue.”
It is understood that the meeting will be attended by Rolls-Royce and Vodafone, plus Business Minister Michael Fallon> and Cabinet Office ministers Francis Maude and Oliver Letwin.