Reverse Factoring / Supplier Finance Program — Buyer's Accounting (ASU 2022-04 Disclosures)

💡 Accountant's Note

Reverse factoring (also called Supply Chain Finance, Supplier Finance Programs, or Confirmed Payables programs) works in reverse from regular factoring: the BUYER sets up an arrangement where its bank pays the SUPPLIER early (within a few days of invoice approval), and the buyer repays the bank on extended terms (e.g., 90–120 days vs. normal 30–45 days). For the buyer: the program extends payment terms without hurting supplier cash flow — suppliers get paid quickly (by the bank, at a slight discount), and buyers get longer to pay. The critical accounting question: Are the buyer's obligations to the bank ACCOUNTS PAYABLE or SHORT-TERM BORROWINGS? The SEC and FASB scrutinized this because companies like Tesco, Carillion, and Walmart had used reverse factoring programs to reclassify what were economically bank borrowings as 'accounts payable' — hiding leverage. ASU 2022-04 (effective December 2022): now requires specific DISCLOSURES about supplier financing programs — key terms, amounts outstanding, and changes during the period — even if classified as AP. The balance sheet classification debate: if the arrangement involves the bank (not the supplier) as the creditor and the terms are significantly extended from normal supplier terms, reclassification from AP to financial liability may be required.