FRC proposals to bring cash flow arrangements in line with international standards welcomed by ACCA  

Improved reporting requirements on supplier finance arrangements will provide insight into supply chain dependencies

Increased clarity and detail on reporting requirements for disclosures of finance arrangements for SMEs could improve businesses' access to finance and the UK’s late payment culture. 

Responding to a consultation from the accounting regulator, The Financial Reporting Council (FRC), leading global accountancy body ACCA (the Association of Chartered Certified Accountants) says the switch would help businesses at a time when accessing finance is difficult and increasingly expensive.  

 ACCA also applauded the alignment with international accounting standards. The FRC proposals come at a time when the government plans to tackle late payments as outlined in last month’s Autumn statement.   

Jessica Bingham, Policy and Insights Lead, (EEMA & UK), ACCA, said: ‘Considering the potential relief that supplier finance arrangements offer, ACCA stresses that these amendments will not only enable a more holistic view of cash flow and firm liquidity, but will also provide clearer insights into supply chain dependencies’.  

ACCA did warn that the benefits of the increased transparency must be balanced with the cost and burden of the additional reporting required.  

Typical supplier finance arrangement – such as factoring or invoice discounting – gives business a cashflow advantage with a finance house providing the value of the sale straightaway and then receiving cash from the customer under standard payment terms.  

ACCA has previously highlighted the fear that SMEs face regarding potential consequences of complaining about the payment practices of larger, more powerful, organisations. 

Practices could include paying later than the agreed terms or forcing suppliers to enter expensive finance arrangements in order to improve the balance sheet and working capital of the larger customer. 

Currently, users of accounts would not be aware of third-party financing arrangements and the impact on the businesses cash flow and financial position. In FRED 84 Draft Amendments to FRS 102 – Supplier Finance Arrangements, the FRC is suggesting bringing UK reporting disclosure requirements for smaller businesses in line with international accounting standards.   

 Bingham said: ‘Increased transparency for supplier finance arrangements enhances accountability and represents a crucial measure in acknowledging the prevailing challenges associated with late payments.’  

 ACCA agreed with the FRC’s proposals to require additional information about an entities use of supplier finance arrangements. Under the key changes, companies would have to disclose the terms and conditions of the finance arrangement; the carrying amount of the financial liabilities of the arrangement; and the range of the payment due dates - such as 30-40 days after the invoice date.   

The FRC has estimated that 414 medium and large businesses could be impacted by the amendment, and that auditor costs could increase annually by £147,000 as well as one off costs for companies and auditors of £900,000.   

 ACCA welcomed the recent government announcement in the Autumn Statement aimed at addressing payment terms. However, changes to payment terms could affect supplier finance arrangements in the long term.  

Bingham said: ‘Businesses seeking to navigate new requirements might explore alternative financial arrangements. For instance, companies bidding for government contracts now need to demonstrate compliance with stricter payment periods throughout their supply chain, potentially impacting the landscape of supplier finance.’   

ACCA is urging the FRC to monitor how late payments are impacting UK businesses.   

If approved, the new rules would come into effect for accounting periods beginning on or after 1 January 2025.  

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About ACCA

We are ACCA (the Association of Chartered Certified Accountants), a globally recognised professional accountancy body providing qualifications and advancing standards in accountancy worldwide.   

Founded in 1904 to widen access to the accountancy profession, we’ve long championed inclusion and today proudly support a diverse community of over 247,000 members and 526,000 future members in 181 countries.    

Our forward-looking qualifications, continuous learning and insights are respected and valued by employers in every sector. They equip individuals with the business and finance expertise and ethical judgment to create, protect, and report the sustainable value delivered by organisations and economies.  

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