Many supply chain finance programs are structured on what is called a “buyer-led” or “buyer-focused” basis.  In certain of these types of programs, although the bank or other financier providing the program (the “Finance Provider”) may purchase accounts receivable represented by invoices or otherwise provide funding to a number of suppliers, the true customer of the Finance Provider is a single corporate buyer of goods and services (the “Buyer”) for whom the program has been arranged (a “payables finance program”).[1]   In certain other programs, a Finance Provider does not purchase the accounts receivable but instead relies only on a promise from the Buyer to make payment to the Finance Provider on supplier invoices the Finance Provider has funded (a “corporate payment undertaking program” and collectively with payables finance programs, “buyer-focused programs”).  Whatever method is used, the Buyer’s active support of the program is the key to making the program marketable. Although the Buyer does not typically have any involvement in the relationship between the Finance Provider and suppliers directly, the Buyer will often have considerable control over which suppliers may be approached for participation in the program and what invoices will be made available for funding (the “Approved Invoices”).

Continue Reading Irrevocable Payment Undertakings and Buyer-Led Supply Chain Finance; Mass Confusion Abounds

Financial Statement Disclosure of Supply Chain and other Trade Payables Programs

Trade payables programs have in recent years increased greatly in popularity among both large and small companies. While originally the sole domain of the large global banks and firmly based on a fairly straightforward reverse factoring model, these programs are now offered by banks

There has been increasing discussion with respect to the accounting treatment of trade payable programs and whether the obligations of the entity that owes the receivable (the “company”) under these programs should continue to be treated as trade payables on their balance sheet or, instead, be reflected as
Continue Reading Accounting and Rating Agency Treatment of Supply Chain and other Trade Payables Programs

Supply chain finance products have a well-deserved reputation of being fairly low risk propositions.  The majority of facilities are uncommitted, exposures are typically short-term and many counterparties are highly rated and well capitalized.  However, even in this product segment, as the COVID-19 pandemic continues to spread and most developed economies face the real prospect of