Observations from the front lines

September 2013
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Observations from the front lines

At a glance

Many companies are seeking to improve their working capital by reviewing the terms of their trade payables. To aid companies in streamlining their payables process, financial institutions built IT solutions to act as an intermediary between purchaser and supplier. As an intermediary, financial institutions can offer a liquidity solution to the supplier by way of factoring their receivables.

Observations from the front lines provides PwC's insight on current economic issues, our perspective regarding the business impacts, and actions we have seen companies taking to effectively address those issues.

Supply chain financing: What you need to know

Accounting guidance for these types of transactions is limited. In determining the appropriate accounting outcome, companies will need to work with procurement, treasury, and financial reporting to understand the roles, responsibilities, and relationships of each party to the transaction.

When analyzing supply chain financing transactions, it is imperative that accounting decision makers actively participate in the discussions with the stakeholders negotiating the transaction, including obtaining a thorough understanding of all the operational and economic aspects.

Highlights in this issue:

  • If you’re utilizing a financial institution’s payables platform while renegotiating the terms of your supplier/vendor payments, be aware of the pitfalls that could lead to reclassification to short-term financing.
  • Be cognizant of not only the terms of the agreement with the financial institution but also the overall process by which your payables will be administered.
  • Avoid situations where the negotiations between your organization and the financial institution are linked to your negotiations between you and your supplier/vendor.

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