Supplier Finance Arrangements: The Hidden Leverage That Must Now Be Disclosed

• Standard: HKAS 7 / HKFRS 7 — Supplier Finance Arrangements (Disclosure Requirements)
• Effective Date: 1 January 2024 (fully embedded in 2025 practice)

Supplier finance arrangements have been a quiet corner of corporate finance for years. The mechanics are simple: a supplier gets paid early by a financial institution, using the buyer’s credit rating. Everyone’s happy. The supplier gets cash faster, the buyer extends their payment terms, and the bank earns a fee.

But from a financial reporting perspective, these arrangements can make a company’s balance sheet look healthier than it actually is. The trade payable gets discharged and replaced by an obligation to the finance provider. Depending on how it’s presented, investors might never know the difference.

That’s the problem the amendments to HKAS 7 and HKFRS 7 are designed to fix.

What Must Be Disclosed

Entities must now include in their financial statement notes:

• Terms and conditions of the arrangements—payment due dates, whether the entity’s payment terms have been extended, and interest rates charged
• Carrying amounts of financial liabilities that are part of the arrangement, with separate disclosure of how they’re presented (trade payables vs. other borrowings)
• Range of payment due dates for liabilities within the arrangement compared to those outside it
• Non-cash changes in these liabilities—the type and effect, typically in a supplier finance reconciliation

Why This Matters

Think of it this way: if a company has $100 million in trade payables, and $60 million of that is actually funded through a reverse factoring programme with a bank, the risk profile is fundamentally different from what the balance sheet suggests. The company isn’t just managing supplier relationships—it’s managing a banking relationship that could be withdrawn.

The new disclosures let investors see:

• Whether cash management has been artificially enhanced through these programmes
• The extent of reliance on supplier finance for working capital
• The true maturity profile of obligations

Getting It Done

If your entity participates in any form of reverse factoring or supply chain finance, the first step is identification. This includes arrangements where a financial institution pays your suppliers on your behalf, even if the arrangement is managed by the supplier rather than by you.

Then compile the data: carrying amounts, payment terms, classification, and non-cash movements.

The standard became effective for periods beginning 1 January 2024, meaning it’s now fully embedded in 2025 reporting practice. If you haven’t addressed this yet, it’s time.

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This article is for informational purposes only and does not constitute professional accounting or legal advice.