Companies often transfer trade receivables to fund working capital and liquidity needs. Examples of such transfers include asset factoring arrangements and transfers of assets (often trade accounts receivables) to bank-sponsored commercial paper conduits and are sometimes referred to as securitizations.
Recent amendments to the accounting guidance governing such transactions have significantly altered the accounting analysis of trade receivable transfers, making it more likely that many structures used to affect such transfers will be accounted for as secured borrowings.
New structures continue to evolve in the marketplace and assessing these transactions under the new guidance can often be challenging. Considerations extend beyond balance sheet ratios, as the revised rules have led to the SEC staff requesting that public filers justify why collections under these structures can continue to be classified as operating cash flows.
Impacts to companies:
What companies should do:
Accounting for transfers of financial assets as a sale has become more difficult, but is not impossible. A company considering these types of transactions should: