New FRS 102 amendments in place for supplier finance arrangements

This became effective for accounting periods beginning on or after 1 January 2025. These changes are based on the International Accounting Standards Board’s Supplier Finance Arrangements amendments to IAS 7 and IFRS 7, issued in May 2023, and have been incorporated into Section 7 of FRS 102.

Although not one of the landmark updates for the revised FRS 102, the changes nevertheless have consequences for any business that relies on third-party finance providers to improve cash flow flexibility. 

These arrangements can improve liquidity management, but there’s also a risk of creating hidden debt and obscuring the accurate timing of cash flows. The new disclosure requirements should provide greater clarity on these arrangements, allowing users of financial statements to see the full picture. 

Bitesize Briefing

If businesses are using supplier finance arrangements, they must now disclose them.

Supplier finance can create hidden liabilities and liquidity pressure. The new disclosures make these obligations visible to investors, lenders and other stakeholders.

Financial guarantees and payment instruments (such as credit cards) are not treated as supplier finance arrangements, because they simply settle the amount owed rather than financing it.

What Counts as Supplier Finance?

Clarifying what exactly constitutes Supplier Finance will help eliminate confusion. 

Supplier finance, also known as reverse factoring or payables finance, is a form of short-term financing. But the key characteristic is that the finance provider is extending credit, not the supplier. 

It does not apply to the following financing instruments, unless the arrangement effectively shifts payment timing or credit risk to a third party:

• Invoice factoring: where generally receivables are sold to a third party
• Payment processors: these typically move funds without providing credit
• Credit cards or direct payments: generally no payment restructuring applies
• Sponsors or grant funders: these typically belong to the revenue side, not payments

Your Key Disclosure Checklist

Businesses must disclose the following in their financial statements: 

• the terms and conditions of the arrangements
• carrying amounts of financial liabilities that are part of a supplier finance arrangement
• carrying amounts of financial liabilities, for which suppliers have already received payment, that are part of a supplier finance arrangement
• The range of payment due dates for such amounts and comparable trade payables. 
• Any non-cash changes in the above-mentioned carrying amounts. 

Disclosure of the key terms and conditions will help financial statements users to better understand the true nature of a business’s financial obligations and where these may divert from standard payment terms. 

Common Supplier Finance Scenarios in Practice

i) Retailer using a bank’s early payment platform.

Suppliers can opt to receive early payment from the bank (the finance provider), while the retailer benefits from extended payment terms, typically 60–90 days.

Result: The retailer has a liability to the bank, which must be disclosed.

ii) Construction company using payables finance.

The main contractor facilitates early payment to subcontractors and suppliers via a finance facility with a bank. 

Result: Updated disclosure requirements reduce the potential for this scenario to mask debt or distort cash flow timing. 

iii) Large manufacturer partnering with a fintech payables platform

Suppliers are offered early payment or dynamic discounting through a third-party fintech provider. 

Result: Key terms, amounts involved, and the range of payment due dates must be disclosed by the manufacturer. 

What Businesses Must Do Next

Businesses should still be working proactively to establish compliance in time for the key amendments within Section 7 of the FRS 102 amendments, covering Supplier Finance Arrangements, to take effect: 

1. Identify whether supplier finance arrangements are present within the group. It’s important to note that finance teams must look beyond the business itself. Subsidiaries, outsourced service providers, and retail operations could all be using supplier finance arrangements. 
2. Confirm where suppliers are paid by third parties.
3. Review the relevant payment terms and timing. Are they standard payables or financed?
4. Prepare new disclosures to cover terms and conditions, amounts, and timing (as above). 
5. Brief stakeholders on any arrangements that may affect liquidity, since this will impact their going concern assessment.

A Note on Qualifying Entities

Some subsidiaries and smaller group entities report under FRS 102’s reduced disclosure framework (RDF). These businesses (“Qualifying entities”) are exempt from the new supplier-finance disclosure requirements only if the group’s consolidated financial statements already include equivalent information. If the group accounts don’t cover this, the entity must make the disclosures itself.

How we can help

Our audit and accounting advisory service can help you accommodate new FRS 102 standards on supplier finance into your financial reporting, as well as advise on setting up your processes and training your key people. 

Crowe Ireland provides expert advisory services to numerous businesses and organisations. To learn more about the impact of new regulations from a compliance and financial reporting perspective and how we can help you, get in touch today.