Reverse Factoring’s Late Payments Controversy

The conversation surrounding late supplier payments is proliferating as new controversies emerge about the impact of reverse financing on supplier payment practices, and as some high-profile businesses face their own late payments criticisms.

This week’s B2B Data Digest breaks down the biggest news stories on the topic and examines key data points behind the world’s ongoing saga to combat late B2B payments.

U.K. Intros New Late Payments Bill

The U.K. continued its legal fight against late supplier payments last month with the introduction of a new bill by Labor peer Lord Jonathan Mendelsohn.

The proposed legislation would establish a 30-day limit to pay all invoices while also combatting predatory B2B payment practices, empowering the U.K. small business commissioner to issue fines against offenders.

The proposal coincided with the release of new data by Pay.UK, which found 26 percent of small to medium-sized businesses (SMBs) say they stress about late payments, with $30 billion in late payments owed to SMBs in 2019 — a massive jump from the $17 billion owed in 2018, researchers noted.

Aussie Giants’ Reverse Factoring Controversy

Two of Australia’s largest conglomerates have faced significant backlash in recent weeks due to their use of reverse factoring, also known as supply chain finance, a tool that has opened up a broader conversation about the impact of such financing solutions on lengthening supplier payment terms.

Telecommunications firm Telstra and mining company Rio Tinto have caught the attention of Australia small business ombudsman Kate Carnell since reports in The Australian uncovered the companies’ use of supply chain financing at a time when the Australian government continues to place pressure on large conglomerates to accelerate payment terms to small suppliers.

Following growing scrutiny, both companies have recently announced they will no longer deploy their supply chain financing programs. But according to Carnell, that’s not enough.

“Why can’t Rio and Telstra pay all [small to medium-sized businesses (SMBs)] in 30 days?” she asked, highlighting the current practice of defining businesses with less than $10 million in annual turnover a “small business,” not a “micro business.”

It’s that inconsistent definition of a small businesses that enables large corporates to use the Business Council of Australia’s older definition of a small business as one with 20 or fewer staff members — not the $10 million threshold — to dictate which small businesses receive faster payment.

“The definition of a small business seems to be a bit of a furphy, and we continue to get reports of significantly longer payment times from big business,” Carnell told the publication.

Separate reports in The Sydney Morning Herald noted SMB accounting software companies Xero and MYOB would be watching this controversy closely as they develop their own invoice financing products.

Cannabis Hit With Vendor Payment Criticism

The legal cannabis market has also caught the attention of late-payment critics in recent weeks as reports surfaced that industry retail giant MedMen is falling behind on its supplier payment practices.

Reports in MarketWatch said MedMen is hoping to appease suppliers with outstanding invoices by paying them in company stock, citing internal company emails seen by the publication. MedMen Chief Financial Officer Zeeshan Hyder has confirmed the practice, noting it is part of the company’s “restructuring,” and the company is “modifying payment terms” with some of its vendors.

As the publication highlighted, late supplier payments in the marijuana market could reflect bigger problems for the industry in both the U.S. and Canada. Citing Viridian Capital Advisors data, there has been a 20.3 percent year-over-year decline in capital raises for legal cannabis companies between 2018 and 2019.

Despite MedMen’s $44 million in revenues in its first fiscal quarter, and despite its nickname as the “Apple Store of pot,” the company’s supplier payment challenges signal a struggle to cut costs and conserve cash, analysts said.

But it’s not the only cannabis company struggling with this issue.

Separate reports from a press release said Canada-based cannabis producer Hexo Corp. is facing a lawsuit from MediPharm Labs Corp., alleging that Hexo has failed to pay for MediPharm Labs’ supply of about $9.8 million worth of cannabis oil.