UK telecommunications group Vodafone, which routinely makes suppliers wait nearly seven weeks for payment, is reported to have started investing in a fund that makes money from the delay, according to reports.
According to Bloomberg, the group invested €1 billion into the €2.4 billion- fund run by Swiss asset manager GAM Holding AG, which generates returns by paying suppliers early if they accept less than they’re owed.
The fund has invoices from many of Vodafone’s 15,000 vendors, say sources, who add that the group makes its partners wait 48 days for their money, versus a 36-day global average, according to consultancy PricewaterhouseCoopers.
“They are behaving a bit like a hedge fund when they are a telecoms company,” Stephen Baseby, who recently retired as policy and technical director at the Association of Corporate Treasurers (ACT) told Bloomberg. “This is the kind of complexity that more conservative treasurers like me would warn against.”
The report suggests that Vodafone began building a position in the GAM-Greensill Supply Chain Fund, jointly run by GAM and London-based Greensill Capital, in 2016 and its holdings have since grown five-fold. A footnote to its full-year 2018 financial statements revealed a major annual increase in short-term investments related to “supply chain and handset receivables,” but no details were disclosed on what those investments were.
Supply chain bullying
In response to the report, Vodafone said it invests in a range of low-risk instruments including gold-backed bank deposits and bespoke investment funds. It added that in the case of its smallest UK suppliers, it pays within 30 days.
“It is totally up to our suppliers if they decide to utilise supply-chain financing and Vodafone has absolutely no say in it,” the group added in a written statement. “GAM has a fiduciary duty to select the best risk/return trade receivable assets for the fund. Vodafone has no influence on which assets are selected by the fund manager.”
Companies routinely postpone payments to keep cash on their balance sheets and bolster their working capital, although earning investment income from the haircuts their suppliers bear if they can’t afford to wait is unusual, Daniel Windaus, a partner for PWC’s consultancy arm, told Bloomberg.
Vodafone’s payment delays are part of a broader trend in ‘supply-chain bullying’ that leaves suppliers stranded without cash, according to Lorence Nye, a policy advisor at the Federation of Small Businesses (FSB), which represents 170,000 UK companies.
“Why not pay them on earlier terms if they have the money to invest?” he added. “Larger businesses are incentivised to delay payment or do this for the sake of looking good to shareholders.”
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