Supplier finance arrangements

Supplier finance can make working capital and operating cash flow look stronger than they are, and some high-profile collapses showed how hidden it could be. This guide explains how these arrangements work, what IAS 7 and IFRS 7 now require companies to disclose, and how the payables and cash flows are presented.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Supplier finance arrangements, also called reverse factoring or supply chain finance, are arrangements in which a finance provider pays a company's suppliers and the company pays the finance provider later. Amendments to IAS 7 and IFRS 7, effective for annual periods beginning on or after 1 January 2024, require disclosure of the terms, the carrying amount of liabilities in the arrangement and how much suppliers have already been paid, the payment due date ranges compared with ordinary payables, non-cash changes and the effect on liquidity risk.

At a glance

Also called
Reverse factoring, supply chain finance
Disclosures from
Annual periods from 1 January 2024
Disclose
Terms, amounts, due dates, non-cash changes
Also
Liquidity risk under IFRS 7
Presentation
Trade payables or borrowings, by substance
US GAAP
ASC 405-50, similar disclosures
Supplier finance arrangementsAlso called: Reverse factoring, supply chain finance; Disclosures from: Annual periods from 1 January 2024; Disclose: Terms, amounts, due dates, non-cash changes; Also: Liquidity risk under IFRS 7; Presentation: Trade payables or borrowings, by substance; US GAAP: ASC 405-50, similar disclosures.KEY FACTS AT A GLANCESupplier finance arrangementsAlso calledReverse factoring, supplychain financeDisclosures fromAnnual periods from 1January 2024DiscloseTerms, amounts, duedates, non-cash changesAlsoLiquidity risk under IFRS7PresentationTrade payables orborrowings, by substanceUS GAAPASC 405-50, similardisclosuresChecked against official sourcesTax BakersSupplier finance arrangementsAlso called: Reverse factoring, supply chain finance; Disclosures from: Annual periods from 1 January 2024; Disclose: Terms, amounts, due dates, non-cash changes; Also: Liquidity risk under IFRS 7; Presentation: Trade payables or borrowings, by substance; US GAAP: ASC 405-50, similar disclosures.KEY FACTS AT A GLANCESupplier finance arrangementsAlso calledReverse factoring, supply chain financeDisclosures fromAnnual periods from 1 January 2024DiscloseTerms, amounts, due dates, non-cash changesAlsoLiquidity risk under IFRS 7PresentationTrade payables or borrowings, by substanceUS GAAPASC 405-50, similar disclosuresChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How do supplier finance arrangements work?

  1. The company agrees a programme with a bank or other finance provider.
  2. Suppliers send invoices as normal; the company approves them.
  3. Suppliers can choose to be paid early by the finance provider, at a discount based on the company's credit rating.
  4. The company pays the finance provider on the original due date, or on extended terms.

The company's working capital benefits if it gets longer payment terms, and suppliers get cheaper, earlier cash. The risk is that the company's reliance on the programme is not visible if it is all presented as ordinary trade payables.

What does IAS 7 now require to be disclosed?

What to disclose about supplier financeWhat to disclose about supplier financeStart of yearEnd of yearLiabilities inthe arrangementAmount andline itemAmount andline itemAlready paidby the providerAmountAmountPayment duedatesRange, vs otherpayablesRange, vs otherpayables
Quantitative disclosures at both dates, plus terms, non-cash changes and liquidity risk.
  • The terms and conditions of the arrangements, such as extended payment terms and security given.
  • At the start and end of the period: the carrying amount of financial liabilities that are part of the arrangements and the line items they are in; the part for which suppliers have already received payment from the finance provider; and the range of payment due dates for those liabilities and for comparable trade payables not in an arrangement.
  • The type and effect of non-cash changes in those liabilities.

IFRS 7 adds supplier finance arrangements as an example in its liquidity risk disclosures, and companies consider the concentration of liquidity risk with finance providers.

A worked example

At year end, CU thousandAmount
Trade payables in total1,000
Of which part of the supplier finance arrangement300
Of which suppliers have already been paid by the bank220
Payment due dates: liabilities in the arrangement60 to 90 days after invoice
Payment due dates: comparable trade payables not in the arrangement30 to 45 days after invoice

A reader can now see that 300 of payables carry extended terms funded by a bank, and that the company would need cash quickly if the programme were withdrawn.

Are the liabilities trade payables or borrowings?

It depends on substance. The IFRS Interpretations Committee concluded in 2020 that a company presents liabilities in an arrangement as trade payables only when they have a similar nature and function to trade payables, for example when the terms are not substantially different. If the arrangement changes the nature of the liability, such as substantially extended terms or security given to the bank, it is presented separately or as borrowings, and the related cash flows follow: payments to the bank are financing cash flows when the liability is a borrowing. Where the bank pays the supplier, the company may have a non-cash transaction to disclose.

Why did the IASB add these requirements?

Investors and analysts asked for them after several company failures in which large supplier finance programmes had been hidden within trade payables, so the extent of the companies' reliance on short-term funding, and the effect on operating cash flow and liquidity, was not visible until it was too late.

How does US GAAP compare?

ASC 405-50 requires similar disclosures for supplier finance programmes, including a roll-forward of obligations, so readers of US and IFRS accounts now get comparable information. See IAS 7 vs ASC 230 and IAS 7 explained.

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Questions people ask

What is a supplier finance arrangement?

An arrangement in which a finance provider pays a company's suppliers and the company pays the finance provider later, also called reverse factoring or supply chain finance.

What does IAS 7 require for supplier finance?

Disclosure of the terms, the carrying amount of liabilities in the arrangements, the part already paid to suppliers, payment due date ranges compared with other payables, and non-cash changes.

When do the supplier finance disclosures apply?

For annual periods beginning on or after 1 January 2024.

Are supplier finance liabilities trade payables?

Only if they have a similar nature and function to trade payables; otherwise they are presented separately or as borrowings.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 7 Statement of Cash Flows

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 7IAS 7 statement of cash flows explainedIFRS vs US GAAPIAS 7 vs ASC 230: cash flow statement differencesIAS 7The indirect method step by step

More in IAS 7

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This guide is general information. It is not tax or legal advice for your situation.