Thursday, July 21, 2022

Earlier this week the corporate accounting overlords adopted a new rule that, starting in 2023, companies will need to disclose more information about their supply chain finance programs starting in 2023.

Have no fear — your favorite purveyor of financial data is on the case!

The decision came from the Financial Accounting Standards Board, which voted on Wednesday to require disclosure of supply chain financing programs. The vote isn’t a surprise; FASB and other regulators have talked for more than a year about wanting more disclosure around this nebulous bit of corporate finance.

Calcbench has been watching this issue for nearly two years. For example, in August 2020 we noticed that the Securities and Exchange Commission had quizzed Coca-Cola ($KO) about its supply chain financing program, and how that program might have contributed to the growing size of Coca-Cola’s accounts payable line. In 2019 the SEC sent a similar inquiry to Procter & Gamble ($PG), also asking about supply chain financing’s possible effects to cash flows and days payable outstanding.

For those unfamiliar with it, supply chain financing is a way for large companies to conserve cash. The company has a third party (usually a bank) pay its vendor invoices promptly, and the bank takes a cut of that amount as profit. Then the company repays the bank the full amount at some later date.

Supply chain financing isn’t a new idea, but the programs have become more popular in the last few years as supply chains became more prone to disruption and inventory costs rose. At the same time, however, companies have not had to report these programs in their financial statements.

Now that’s going to change. ​​As explained in a Wall Street Journal article, FASB’s new rule will require companies to disclose the outstanding balance of their financing programs every quarter and provide year-over-year comparisons.

‘So When Do We Get the Data?’

Calcbench users can get some observations about supply chain financing programs right now, with more to come soon.

First, you can always use our Interactive Disclosures database to search the footnotes for “supply chain finance.” Numerous companies already report some details about how they use such programs, with varying degrees of detail.

For example, General Electric ($GE) had this to say on the subject in its 2021 report filed earlier this year:

SUPPLY CHAIN FINANCE PROGRAMS. We evaluate supply chain finance programs to ensure where we use a third-party intermediary to settle our trade payables, their involvement does not change the nature, existence, amount, or timing of our trade payables and does not provide the Company with any direct economic benefit. If any characteristics of the trade payables change or we receive a direct economic benefit, we reclassify the trade payables as borrowings.

Likewise, Dollar General ($DG) had this to say, including the outstanding balance it had at the end of its 2021 fiscal year:

We utilize supply chain finance programs whereby qualifying suppliers may elect at their sole discretion to sell our payment obligations to designated third party financial institutions. While the terms of these agreements are between the supplier and the financial institution, the supply chain finance financial institutions allow the participating suppliers to utilize our creditworthiness in establishing credit spreads and associated costs. As of January 28, 2022, the amount due to suppliers participating in these supply chain finance programs was $328.2 million.

Calcbench users can also search SEC comment letters to see whether the agency has raised supply chain finance questions with specific companies. You can do this in two ways. First, you can search our running list of recent SEC comment letters, although that approach is hit or miss; you need to read one letter after another to see whether any of them mention supply chain finance.

You can also use our Interactive Disclosures tool for SEC comment letters, too. Just look for the “Choose disclosure type” menu on the left side of the page, and you can filter results specifically to SEC comment letters. Then search for “supply chain finance” (or “financing” and other related terms) to see what comes up.

In the fullness of time, FASB will develop specific XBRL tags for supply chain finance data. That hasn’t happened yet because the rule is brand new, but soon enough the data will be tagged and searchable in an automated way. Then you’ll be able to find it elsewhere in Calcbench, such as on the Multi-Company page or the Raw XBRL Search page.

So stay tuned; we got you covered.

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