A new report by supply chain finance platform, Demica, reveals that the majority of supply chain finance professionals do not expect the new accounting disclosure rules to impact the nature of the payables finance products they offer to their clients.
Demica’s 2023 Benchmark Report for Banks in Trade Finance reveals 92 per cent of respondents don’t expect the new accounting disclosure rules to change the nature of the payables finance products they offer to their clients. Furthermore, just five per cent of those working in payables finance teams say that the changes are presenting a significant challenge. Especially when setting up transactions.
Fifty-three per cent also believe the disclosure rules there will pose no significant change to the demand for payables finance.
In September 2022, the Financial Accounting Standards Board (FASB) – the standard-setter for accounting in the US – released a new standard on disclosure. It affects the supply chain finance (SCF) industry. Many countries across the rest of the world expect the International Accounting Standards Board (IASB), which sets standards, to implement similar rules.
Is the change something companies should worry about?
Companies that set up SCF facilities so their suppliers can get paid early via a bank or other finance provider will have to disclose the terms and size of their SCF programmes through their financial statement footnotes. This is intended to clarify the effect of these programmes on a company’s working capital and cash flows over time.
More reporting requirements are not typically popular. Therefore, industry analysts expected that banks would generally express concern about the impact of these changes. However, only five per cent of Demica’s survey respondents consider changes to disclosure rules by accounting boards as a top challenge for the industry going forward.
Whilst not considered to be a top challenge facing payables teams, 26 per cent of respondents do think the changes will impact the demand for payables finance. They believe they will lead to fewer payables transactions overall. However, 21 per cent expect there to be an increase in demand, whilst 53 per cent believe there will be no significant change.
Matt Wreford, CEO of Demica says: “Despite significant changes to the accounting disclosure rules, we are not seeing a reduction in demand in usage for new programmes relative to last year – but it will take time to see the impact on the sales to new customers.
“Our view is that increased transparency is a positive for the market generally and so we side more with the 21 per cent of participants forecasting increased demand.
“Based on the responses to our questions regarding the change to disclosure rules, it is interesting that 92 per cent of respondents do not expect any need to change their product offering.
“However, it is worth considering that there may be some necessary changes to data reporting, as funders will need to provide information such as the numbers of the assets funded or current outstanding assets annually to the corporates. So, whilst it won’t fundamentally change the product offering, it is important to bear in mind.”