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Under New FASB Rule, Companies Are Disclosing Supply Chain Financing Details

S.J. Steinhardt
Published Date:
May 23, 2023

iStock-826741128 Accounting Standards

Companies are now disclosing their supply-chain-finance program details under a rule approved by the Financial Accounting Standards Board, that recently went into effect, The Wall Street Journal reported.

Supply-chain finance is a form of short-term borrowing to pay for goods and services from suppliers. Concerns were raised about the practice after the 2021 collapse of Greensill Capital Management, a major provider of supply-chain finance.

In April, paint maker PPG Industries said it had $199 million owed to financial intermediaries to settle supplier invoices under its program as of March 31, about 5 percent of its accounts payable and accrued liabilities. Dutch chemical company LyondellBassell, also that month, said it had $63 million payable to suppliers in its program as of March 31, about 2 percent of its trade payables.

Several companies with the largest supply-chain programs—such as Coca-Cola, Boeing, AT&T, General Electric, Kimberly-Clark, General Motors and Keurig Dr Pepper—were already disclosing program details before the rule went into effect. But the latest disclosures provided information not previously mandated in the United States, giving investors a better sense of the companies’ outstanding obligations tied to the programs.

Keurig Dr Pepper’s program represented about 79 percent of its $4.95 billion in total accounts payable for the first quarter, an usually high proportion, as few companies’ programs make up more than a quarter of their payables. The new rule led the company to change how it presented the program’s size, the Journal reported.

Companies that rely heavily on supply-chain finance shouldn’t necessarily be a concern to investors, Nathan Feather, CFO at PrimeRevenue, a provider of supply-chain-finance services, told the Journal.

Demand for supply-chain financing demand is expected to keep rising as the Federal Reserve continues to raise interest rates because higher interest rates make it more expensive for companies to access cash through other financing, according to the Journal. 

“For the companies with the higher credit ratings, there will remain a strong demand for supply-chain finance because they have the advantage of favorable debt trends and they can use this to support their suppliers,” Fang Chen, an associate professor of finance at the University of New Haven, told the Journal. 

But the new rule has its critics, who maintain that it does not go far enough. One is David Gonzales, a senior accounting analyst at Moody’s Investors Service. He told the Journal that  companies’ disclosures under the new rule aren’t providing consistent information about the timing of payments the financial institution makes to suppliers nor consistent indication of due dates of the original trade payables. He also said that companies still don’t have to provide the amount of supplier finance programs outstanding for which the supplier has already been paid, which could pose a possible liquidity gap, he said. 

More disclosure is coming, as annual “roll forward” information, or the invoiced amount that companies have yet to pay under the program, will be required starting in 2024. The International Accounting Standards Board (IASB) moved up its timeline for added disclosure requirements mandate from 2025 to 2024.

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