As ‘supplier finance arrangements’ may evolve over time, the term has not been defined in either IAS 7 or IFRS 7 because there is a risk of it becoming outdated as new practices and arrangements develop. Instead, the proposals in ED/2021/10 describe the characteristics of a ‘supplier finance arrangement’ in proposed paragraph 44G to IAS 7 as follows:
- One or more finance providers offer to pay amounts an entity owes its suppliers
- The entity agrees to pay the finance providers at the same date, or a later date, than suppliers are usually paid
- Entity gets extended payment terms, or supplier gets early repayment terms, compared to the invoice payment due date
- Often referred to as ‘supply chain finance’, ‘payables finance’ or ‘reverse factoring arrangements’.
Under the proposals, supplier finance arrangements include situations where the entity (customer) is seeking to extend repayment terms, as well as those where the supplier is seeking to be paid earlier than its usual repayment terms.