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Returning to the Greensill supply chain finance (SCF) scandal, the excellent BBC Panorama programme earlier this month dug further into the affair, including the role of ex-Prime Minster David Cameron. It is well worth watching and gives a clear explanation of how the Greensill business model “worked” and eventually unwound. Panorama exposed how deeply involved Cameron was with the Greensill business, and says that he allegedly made $10 million for two and a half years of part-time work with the firm.

Cameron told Panorama he knew nothing about the dodgier aspects of Greensill, but if he didn’t know quite how flaky Greensill’s business model was, then he was naïve, as well as greedy. If he did know, and Panorama suggests he was aware of some of the key issues, then maybe he will end up in court alongside others who I’m pretty convinced will end up there.

At the core of Greensill’s model was the ability to attract finance by claiming that his SCF loans were low risk because they were based on issued invoices that would be paid by the customer. Some of Greensill’s finance came from the bank in Germany that the firm owned – Panorama suggested that up to £2.5 billion might be lost from that source. Greensill also raised vast amounts of cash via bonds issued through Credit Suisse – some $10 billion. Again that was presented to investors as very low risk, as loans were backed by invoices, so the cost of raising that money was low for Greensill.

It now transpires that some of the “invoices” that money was advanced against were not invoices at all in the way that any procurement or finance person (or frankly any sensible person) would recognise. Rather, they were just vague expectations or hypothetical transactions concernign future income from customers of the firms to whom Greensill was lending money. The Gupta steel firms in particular raised huge amounts of money from Greensill on the basis that they would at some point sell “some stuff” to “some companies”! The BBC suggests that other invoices were simply fake.

So this was totally unsecured lending to firms such as those in the Gupta group, rather than lending backed by real transactions and future income flows. And guess what – much of the money Greensill lent is now not being repaid.

Lex Greensill told Panorama that he “did not mislead any investor, depositor or customer”. He said the predicted sales were “future receivables which are commonplace in the financial services market”. The loans were based on future trade that was likely to occur from current customers. In fact, even this wasn’t true, as firms who were listed as “current customers” simply weren’t, according to Panorama. Greensill then explained they didn’t even have to be current customers. He made all the right disclosures to Credit Suisse, he says ….

But back to the statement that this approach – lending money on predicted future invoices – is commonplace. It is not. Supply Chain Finance technology is covered well by Spend Matters and whilst it wasn’t my personal core area of interest, I met enough players in that market over my years editing Spend Matters to know that it was almost always based on actual invoices.

There were firms that were looking to base financing on invoices that had been received by the buyer but not yet approved, or invoices that would be issued in the future but were for agreed work (e.g. stage payments), with the buyer irrevocably committing to pay. But even those approaches were seen as somewhat risky and daring because of the lending risk (what if the buyer didn’t approve the invoice?)

Nobody I ever spoke to was talking about payment against some totally imaginary future invoices, whether identified with current customers or not. So Greensill is talking nonsense when he suggests that lending against future receivables is some sort of common practice. But then he always talked a lot of nonsense.

On a related note, the Boardman “Review into the development and use of supply chain finance (and associated schemes) in government” came out last month. It looks into how Greensill worked within government and the access he had to senior civil servants and ministers. I’m still getting to grips with that, so I may be back to this issue again.

Organisations waste time, money and resources buying goods and services they don’t really need, or they buy the wrong products, or pay more than they should. Sometimes they don’t even receive anything in return for their cash, when we look at the most extreme cases of incompetence or fraud.

In businesses or government bodies of all shapes and sizes around the world, money is being lost, wasted, spent inappropriately, defrauded or stolen. What is the cause of this epidemic? Let’s just call it Bad Buying, because at its simplest, that’s what it is.

These issues are truly global, and no industry or country is immune from bad buying; it exists in every country in the world, and in almost every organisation. When Kentucky Fried Chicken runs out of chicken, to the horror of its customers, or a firm such as Skandia pays large sums of money to fraudsters through invoice mis-direction, we can see the result of bad buying practices or processes.

An estimate in 2012 suggested that all the businesses in the world had a combined revenue of $64 trillion. Increase that by 20% to allow conservatively for growth and inflation since then, which gets us to $77 trillion. Lets say conservatively that 50% of that is used to buy from other organisations. That gives some $38 trillion of “buying spend”. It would take an economist to determine exactly what the effect would be if that expenditure could be executed more effectively and efficiently. But clearly, even a small “saving” of a couple of percent on that huge number would bring major benefits to organisations and would improve the overall efficiency of the global economy.

A recent estimate puts the total global public sector procurement spend at $13 trillion. A 5% improvement in the value obtained from this money would release another $650 billion every year. That is money that could be used by governments to alleviate hunger, cure diseases, or improve education in the developing world. And 5% is not unrealistic, given the scale of fraud and corruption in many countries, as well as the opportunities from improving conventional buying performance.

Given just how much money is being spent with suppliers, it is perhaps not surprising that it goes wrong occasionally. But sometimes it goes VERY wrong. In fact, at times it can bankrupt the company, or in the case of government, can lead to political turmoil, front-page news or even revolutions and resignations. So with this website, we aim to highlight the stories that show how and why organisations, public and private, waste billions through bad buying. We will look at cases where it is down to simple incompetence – laziness, a lack of knowledge, understanding or information – but the end result will have a cost to the organisation, sometimes a significant one.

Occasionally, bad buying has darker, criminal motivations. Ranging from the clerk who creates a fictitious company as a “supplier” and channels a few thousand into their own bank account, to huge multinational scandals that have led to Prime Ministers, admirals or CEOs languishing in prison, we will uncover the fraud and corruption at the heart of many buying scandals. And of course, with a more positive intent, we will look at how you can avoid bad buying, and the principles, processes, technology and skills that will reduce your own risk of buying failure.

We hope our readers will contribute, with your own stories of bad (and good) buying, and above all, we hope you enjoy the Bad Buying website, and find it useful, informative and stimulating! And watch out for the book, to be published in October 2020 by Penguin Business, titled “Bad Buying – How organisation waste billions through failure, fraud and f*ck-ups”.

BBC Panorama Looks Into the Greensill Affair

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