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Supply chain finance (SCF) is unlikely to be a viable solution for SMEs seeking additional working capital in the short-term, a forum in the Netherlands has heard.

One of the most voguish elements of SCF, reverse factoring (also known as supplier finance) is likely to be particularly unattainable for small businesses primarily because of the lack of awareness around it in the marketplace.

Erwin Matthijssen, a partner at M3 Consultancy which, along with Zanders – a treasury and financial solutions provider – conducted research into the area, said the product is likely to be hamstrung by its relative newness.

Of all the companies and banks interviewed in the research process, not a single one had included an SME in their reverse factoring programme.

“There is no direct debit finance community,” he told delegates. “Everybody knows what that product is and the need to educate doesn’t exist. But there are currently no takers for reverse factoring in the SME market.”

Matthijssen was speaking at the launch event of the SCF Community, an organisation led by 23 European business schools, joined by corporations, banks, consultancies and technology vendors and geared towards innovating SCF.

He went on to express his desire that the SCF Community, the first session of which took place in Nyenrode New Business School outside Amsterdam last week, would help find ways of raising awareness to all forms of SCF in the marketplace.

Reverse factoring is a solution through which an ordering party leverages its own strong banking relationships, credit rating or in-house financial clout to support companies along its supply chain.

The overall aim is to unlock working capital caught up along the supply chain. For the supplier, it frees up credit lines to be used elsewhere (such as product development) and boosts working capital, while for the buyer it helps to ensure the stability and quality of its supply chain.

However, the relative infancy of the product has led to distrust in some areas. Suppliers, said various speakers on the day, need to be educated as to the benefits of the solution.

Another factor stopping the solution from growing is its relative expense. Onboarding suppliers – particularly small ones – can be costly and time-consuming, since it requires training and the adjustment of payments processes, systems and compliance standards.

Since SMEs often find themselves at the tail-end of the corporate spending curve, the benefit of including them in a reverse factoring programme is often negligible in comparison to the cost (with the exception of strategic SME suppliers).

Companies that roll reverse factoring programmes out along their supply chains typically have a minimum threshold for inclusion. A representative of one large drinks manufacturer speaking at the Nyenrode event (who wished not to be named) said that for his company, the supplier must have a turnover of more than €100,000 a year in order to be included.

Other delegates, however, suggested that this was an unusually low threshold and that the figure is normally closer to the €1mn mark. 90% of Dutch businesses have turnovers of less than €1mn. Most, therefore, won’t be eligible for inclusion in many reverse factoring programmes. The statistics are unlikely to be vastly different for most of Western Europe.

Simon Ampts, director of supplier finance at Rabobank told GTR that while he agrees that including small businesses in such programmes can be expensive, it should not be ruled out automatically.

“The statement is rather impetuous,” he said. “We do see that SMEs can reap the benefits from participation in a supplier finance programme. However, since the onboarding process of both small as well as large suppliers is similar, for example IT and documentation, the effort is not always worth the benefit. This can only be changed to further develop and automate the product and the onboarding processes. This takes time.”

Michiel Steeman, the executive director of the SCF Community, presented the findings of a study which showed the scale of the task at hand for those hoping to encourage growth in reverse factoring.

The research pooled the views of 450 Dutch purchasing managers, finding that just 4% offered a designated reverse factoring programme. 10% offered a SCF programme that doesn’t concern reverse factoring, with 86% not knowingly offering anything at all.

Of course, ad hoc lending often takes place along a supply chain. If a supplier is in danger of not meeting an order, for instance, the buyer may step in with a short-term loan. Equally, a buyer will often finance innovation among suppliers if it leads to them securing a better quality policy.

But Steeman called on companies to formalise this, by adopting a central SCF strategy that’s jointly devised and operated by accounting and finance, supply chain management and procurement and sourcing.

The Dutch government has instigated programmes across 13 sectors of the economy to increase co-operation between academia, the public sector, finance and industry in order to encourage innovation in SCF.

Lorike Hagdorn, director of strategy at TNO, a research institution, is part of the team driving change in the logistics sector. She estimated that there is €20bn of working capital locked in the supply chain in the form of unpaid invoices.

Dedicated reverse factoring programmes could help unlock up to 10% of this, adding up to €2bn to the Dutch economy.

The Netherlands hopes to be the world leader in SCF development, but programmes rolled out by everyone from the British government to US Exim show that it is a growing concern for organisations around the world.