In order to enhance transparency in the financial statement presentation and disclosure of supplier finance programs, the Financial Accounting Standards Board (FASB) issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations and related amendments.
Supplier finance programs (AKA structured payables, payables finance, or reverse factoring) allow buyers to offer early payment for goods or services purchased from a supplier by way of an intermediary, which is essentially a third-party lender.
While each of the three parties involved have various motivations for participating in these agreements, the key advantage to a buyer is the ability to obtain extended payment terms and potential monetary benefits passed down to the buyer from the intermediary.
FASB Requires the Following Disclosures
Qualitative Disclosures
- Key terms of the program, including a description of the payment terms (i.e. payment timing and basis for determination).
- Assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider.
- A description of where the obligations are presented in the balance sheet.
Quantitative Disclosures
- Amounts outstanding that remain unpaid by the buyer as of the end of the period.
- Rollforward of obligations stated in the balance sheet. This includes the amount confirmed and outstanding at the start of the period, the amount added during, the amount settled during, and the amount outstanding at period end.
These required disclosures do not impact the recognition, measurement, or financial statement presentation of the obligations covered by supplier finance programs.
The majority of these required disclosures became effective in 2023. Disclosure of the rollforward information described above became effective in 2024.
Questions on Supplier Finance Programs?
Are you looking for more information on supplier finance arrangements, and related tracking and reporting of these programs? If so, you may contact us at (401) 921-2000, or fill out our contact form.