Organizations have begun providing details about the financing of their supply chains following the passing of a new rule by the Financial Accounting Standards Board (FASB) that requires U.S. companies to disclose the terms and size of their supply chain financing programs, starting in 2023. Supply chain financing strategies optimize cash flow by allowing businesses to lengthen their payment terms to their suppliers, while providing the option for their large and SME suppliers to get paid early.
According to The Wall Street Journal, the rule orders companies to provide a general description of their payment terms as well as any other forms of securities or guarantees that they or their affiliates offered to finance providers. The FASB's stated goal is to to enhance the transparency about the use of supplier finance programs for investors and other allocators of capital by requiring buyers of goods and services to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.
Bedrock AI, PPG Industries, LyondellBasell Industries, Fluence Energy and Viatris were some of the first companies to disclose their supply chain financing data during the most recent quarter under this new rule.
In April 2023, PPG Industries said that it had to pay $199 million to settle supplier invoices under its financing program as of March 31, 2023. Meanwhile, LyondellBasell Industries disclosed that it had to pay its suppliers $63 million as part of its financing program, as of March 31, 2023.
Prior to the FASB’s rule taking effect, some of the world’s biggest companies, including Coca-Cola, Boeing, AT&T, General Electric, Kimberly-Clark, General Motors and Keurig Dr Pepper, were already disclosing details about their supply chain financing programs. Each of the aforementioned organizations reportedly ran financing programs worth at least $1 billion during the most recent quarter according to industry filings.
More disclosures are expected to be coming soon, since annual “roll forward” information — the invoiced amount of money that companies have yet to pay under the program — will be required starting in 2024. The International Accounting Standards Board recently moved up the timing for providing those disclosures from 2025 to January 1, 2024.
“There’s no reason why any part of the supply chain shouldn’t be able to participate in this type of program,” said Nathan Feather, chief financial officer at PrimeRevenue. “As you see larger and larger percentages, you take away that this is a widespread initiative within the company, and it’s being treated as sort of the standard operating procedure."
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