My heart was gladdened recently by the spectacular collapse of Greensill Capital, once a darling of the financial and (some) political elites in Australia and the UK.
Greensill was a ‘leader’ in reverse factoring, also known as supply chain financing. In its simplest formulation, reverse factoring enables a supplier to receive faster payment of money owed to it by paying a fee to a finance company. The finance company pays the supplier and takes over the debt. It can be good.
But the way it was working under Greensill had the stench of ‘come in sucker’.
Greensill claimed to have hundreds of clients, all of whom seemed to be big-end-of-town types such as Telstra.
But the trick that was happening under Greensill is that its clients seemed to routinely screw their small business suppliers by extending payment terms out to 90+ days. The deal then was that the small businesses would pay a commission to Greensill so that Greensill would pay them the money they were owed by the conglomerate.
In summary, the conglomerate takes money from the small business by extending payment terms. Then the small business had to pay Greensill to be paid. For small business it was rip-off territory.
But what was really on display here was capitalism at its grubby, manipulative worst.
Market economies and societies are not Wild West, unrestrained capitalist societies. Successful markets regulate behaviour. Good market regulation is as ‘light touch’ as possible. In the Greensill case, the regulators had moved in on this reverse factoring model and went further.
In the 2019 Federal Election campaign the Morrison Coalition made a firm commitment to introduce a package of small business pay-on-time laws. This included the government paying small business suppliers within 20 days, as well as requiring large businesses contracting with government to do the same. And further, establishing a compulsory small business pay-on-time reporting system for all large businesses.
As of now, each of these promises has been implemented or is in the final stages of implementation. Cross-party political support has been firm.
In this case of Greensill the damage to small businesses by the exploitative reverse factoring game was limited. The regulatory push moved in comparatively early. Too often, if the market is unregulated and left to ‘self-correct’, the damage to individuals is horrendous. Harm done to a few cannot be justified by the alleged benefit of the greater good in the long term.
In this ‘pay on time’ story we can witness perhaps an example of quality, ‘light touch’ regulation.
And there’s one simple principle in play. If you owe money: Pay!
Without doubt, for small business people, being paid on time is the BIG issue!