Telstra spent more than a year plotting a radical shift to its payment terms designed to move its smaller and medium-sized suppliers on to so-called supply-chain financing before informing them of the change.
The telco has partnered with San Francisco-based Taulia — the same fintech company that Rio Tinto is using to push its so-called “dynamic discounting” scheme on its 10,000 suppliers — to bolster its cash flow at the expense of its suppliers.
But although Telstra gave its smaller and medium-sized suppliers only a month to respond to changes that would have a significant impact on their own businesses and cash flow, The Australian can reveal that the telecommunications giant and Taulia had been planning the shift for more than a year.
Telstra launched its scheme in February last year with its smaller suppliers after a progressive rollout with their bigger suppliers.
At the same time, Telstra extended its payment terms from 45 to 62 days from the end of the month the invoice was lodged — a period that effectively represented up to 90 days in some cases.
Telstra’s smaller and medium-sized suppliers were given 30 days to respond to the telco’s notice — sent on February 22, 2019 — and offered a way to “minimise the impact” of the change by joining the supply-chain financing scheme to get funds earlier, but this would involve suppliers taking a haircut on the invoice.
But almost two months before the letter was sent, Telstra’s general manager of procurement, George Papanikolopoulos, was publicly boasting of the impact the changes would make to the telecom major’s bottom line.
In a promotional video posted by Taulia a month before the letter was sent to suppliers, Mr Papanikolopoulos said the changes would boost Telstra’s bottom line by more than $500m.
Mr Papanikolopoulos said Telstra had been working on ways to push back its payment terms for two years “with a single-minded approach” and had been planning changes alongside Taulia for much of that time.
“It’s been almost a year since implementation, in terms of technology implemented in our system and enabling the conversation with our suppliers to extend payment terms,” he said.
“We’ve had that first taste of success as to what the outcomes start to look like.
“We’re sort of really at the beginning of the proper journey.
“We’ve done the climb to the top of the slope so now we can see the expanse of the ski field in front of us in terms of all these opportunities.”
The Telstra procurement boss said the company had already been in touch with some of its larger suppliers — about 80 per cent of Telstra’s procurement is with 100 large companies — and 74 suppliers had joined the payment scheme, with $500m in “free cash” liberated and $3.5bn worth of spending “influenced”.
It was a month later that Mr Papanikolopoulos’s team sent letters to the other 80 per cent of Telstra suppliers telling them to expect later payment in future.
“In consideration for you doing so, Telstra will make available to you a new financing facility called supply chain finance (SCF),” Mr Papanikolopoulos wrote.
“SCF provides the option to receive payment of your invoices as soon as they are approved for payment, which in most cases is around 10 to 15 days after Telstra receives an invoice.”
Suppliers say the financing offer was negotiated directly with Taulia, which boasts it uses artificial intelligence and big data to work out what rates can be borne by an individual supplier, and Telstra’s “low-cost” option would come to an annualised rate of more than 7 per cent.
One supplier told The Australian they could not afford to wait 62 days from the end of month for payment and had little choice but to take a 7.5 per cent annualised hit to their invoices.
In exchange, Telstra — through Taulia — reduced the supplier’s payment time from 62 days to about 30 days.
“It’s a bit unfair if you look at their position in the Australian market,” the supplier said.
“The core problem is the supplier payment terms. If you had a reasonable supplier payment term then you wouldn’t need supply-chain financing.”
The Taulia deal led to an extraordinary growth in Telstra’s use of supply-chain financing, also known as reverse factoring, which has attracted scrutiny from the Australian Competition & Consumer Commission and federal Small Business Ombudsman Kate Carnell and criticism from political quarters including West Australia Premier Mark McGowan and federal opposition employment and industry spokesman Brendan O’Connor.
Telstra’s 2018-2019 annual report showed that the use of supply-chain financing had allowed the company to shift $591m worth of unpaid bills from the “trade payables” line item in its financial statements to “other payables” — $551m more than in the previous fiscal year.
Mr O’Connor referred Telstra’s scheme to the ACCC last October and The Australian understands the regulator is running inquiries into the telco.
A Telstra spokesman says the company has maintained 30-day payment terms for all its small business suppliers since 2017 — representing 800,000 invoices worth more than $1.5bn over that period.
But there is no standard definition for a small business. Telstra uses the Australian Bureau of Statistics definition of businesses with fewer than 20 employees. However, the Australian Taxation Office considers businesses with less than $10m in annual turnover as small — pushing some suppliers outside the threshold.
“Some of the dilemmas here are the rules on what an eligible small business is vary a fair bit between companies who have signed the Australian Supplier Payment Code,” Ms Carnell said.
“There is a whole range of approaches to that which lead it to be very much in the eyes of the beholder. If we could just get back to what would be an ethical approach, you should pay — and not just small businesses — your accounts on time like the rest of us do.
“Surely if we paid invoices on time in 30 days or less, then the money would move more quickly through the economy, people would be in a better place to plan growth and plan employment and it would be a good outcome.”
The Telstra spokesman said the company had received positive feedback from suppliers who had signed on to its supply-chain financing scheme, saying it was “a simple, safe and low-cost way to manage their cash flow”.
“From FY18, Telstra began a process to reset payment terms for our larger suppliers to 62 days from the end of the month in which those invoices are submitted. When making this change we looked at global and local peers to develop a benchmark, and even with the change our terms remain more favourable to suppliers than those of some of our peers,” the spokesman said.
“Over a two-year period, we worked directly with as many suppliers as possible to discuss the change with them. This shift in payment terms created a relatively small, but important one-off improvement in our cash flow.
“At the same time, we introduced an online platform which gave suppliers access to a supply- chain financing option.
“This option allows suppliers to have their invoices paid earlier by a third party, in exchange for making an interest payment that is agreed with the third party.
“We do not have a direct involvement in the agreements between suppliers and their supply-chain finance provider. Our obligation is to pay invoices on time, without any changes.”
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