7.13 Supplier Finance Programs
An entity may work with a bank or other intermediary to arrange a supplier finance
program (also referred to as structured trade payables, reverse factoring, vendor
payable, supply-chain financing, and extended vendor payables programs). Under the
terms of the program, the intermediary typically pays the amount owed to an entity’s
supplier of goods or services before the due date of the related supplier (trade)
payable. Then, the entity settles with the intermediary on a later date.
An entity’s use of such a program could result in recharacterization of the trade
payable as debt (i.e., a borrowing) on the balance sheet. The balance sheet
classification generally dictates the classification in the statement of cash flows
as follows:
- Trade payables balance sheet classification — The payment by the bank or intermediary to the supplier has no effect on the entity’s statement of cash flows. The entity should present the cash payment to the bank or intermediary as an operating cash outflow.
- Debt balance sheet classification — If the entity recharacterizes the trade payable to borrowings (e.g., upon payment of the supplier by the bank or intermediary), the entity generally would record a financing cash inflow (for the amounts borrowed from the bank or intermediary) and an operating cash outflow (for the payment to the supplier by the bank or intermediary). This presentation in the statement of cash flows is consistent with the concept of constructive receipt and disbursement, which is discussed further in Section 7.2. The subsequent cash payment to the bank or intermediary is a financing cash outflow.
See Appendix
C for an example of an SEC comment letter on this topic that also
addresses considerations related to financial statement disclosures.
Changing Lanes
In September 2022, the FASB issued ASU 2022-04 to enhance transparency
about an entity’s use of supplier finance programs. Under the ASU, the buyer
in a supplier finance program is required to disclose information about the
key terms of the program, outstanding amounts as of the end of the period
that the buyer has confirmed as valid in accordance with the supplier
finance program, a rollforward of such amounts during each annual period,
and a description of where in the financial statements outstanding amounts
are presented. The ASU does not affect the recognition, measurement, or
presentation of supplier finance program obligations on the face of the
balance sheet or in the cash flow statement.