The small business ombudsman has issued a warning to big businesses using supply chain finance products that mine big data to manipulate suppliers, following disturbing reports that big companies turn to artificial intelligence to calculate how much of a cut suppliers are willing to take.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) put big companies manipulating small business suppliers on notice on Thursday, following a report in The Australian suggesting that Rio Tinto is in fact mining big data to “bleed desperate suppliers”.
The news daily reported over the weekend that the mining giant is employing an “aggressive” discounting scheme which cuts invoices if a supplier wants to be paid in under 30 days.
A couple of days later, Rio Tinto issued a statement in which it admits to offering an accelerated process. The company said that based on positive feedback and as part of its voluntary online portal, those requiring shorter payment terms than the agreed 30 days have been offered “discounted accelerated payments”.
“After review, Rio Tinto will no longer offer this accelerated payment option and will work on transition arrangements for those suppliers, representing about 3 per cent of Rio Tinto’s 10,000 Australian suppliers, that had selected the option,” the miner said.
Rio Tinto chief commercial officer Simon Trott added: “We are concerned about any reports that suggest we are not meeting supplier expectations and encourage suppliers to work with us and continue providing feedback about how our processes can be enhanced.”
Reacting to the news, the small business ombudsman, Kate Carnell, called the reports “disturbing”.
“Recent reports of big businesses using supply chain finance platforms that use artificial intelligence to calculate the discount a supplier may be willing to accept, are disturbing.
“These types of reverse factoring products that vary based on how desperate the supplier is, are being closely looked at as part of our ongoing Supply Chain Financing Review.”
The Ombudsman launched a review to dig into the impact of supply chain finance in November last year, after concerns were flagged about so-called reverse factoring by some corporations.
In the press release issued on Thursday, Ms Carnell revealed that her office has been contacted by small businesses concerned with the use of artificial intelligence and big data to determine and target discounts.
“It’s clearly not OK for big businesses to use their dominant position and access to technology to further squeeze small business margins.
“Unfortunately, the only way to level the playing field is through further regulation and legislation, which means more red tape.”
Ms Carnell pointed out that while supply chain finance can be a legitimate and effective tool to free up cash flow for small and family business, it should never be a replacement for reasonable payment terms being offered.
“It is imperative small businesses are paid on time. We know that late payments equate to a $7 billion drag on the economy.”
Since the review was launched, the ASBFEO has held a wide-ranging consultation process with large businesses, small businesses and supply chain finance providers. While the review is supposed to explore the ways in which small businesses and family businesses are able to access supply chain finance to manage their cash flow and future growth, it will also look into which of these facilities corporate Australia are using to “offset extended payment times”.
An interim report is due for release in March 2020, with the full report due by the end of April 2020.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.