Five Facts Treasurers Need to Know About New SCF Disclosure Requirements

Published: October 11, 2021

As new far-reaching disclosure requirements for supply chain finance programmes emerge, Steve Lauricella, Head of Business Development and Partnerships, Previse, looks at how CFOs and treasurers can prepare to respond.

Regulators are implementing wide-ranging disclosure requirements for supply chain finance (SCF) programmes. The changes, being driven globally by the International Accounting Standards Board (IASB), Financial Accounting Standards Board (FASB), UK-based rating agency Fitch, and others, will require companies to publicly disclose the size and scope of their SCF programmes.

Here is what you need to know about the coming changes and alternative models for funding essential supply chain initiatives.

Supply chains have faced incredible stress and scrutiny over the past 18 months. From semiconductor chips to the Suez Canal, global trade is, and will continue to be, under a fierce spotlight. And, in the wake of high-profile financial failures, it is no wonder the industry is undergoing regulatory change.

At the core, demands for increased disclosure about SCF programmes call for more clarity and transparency. This is a good thing. But the new disclosure requirements will have consequences for SCF programmes that have been instrumental to buyers and suppliers for decades.

What are the key facts CFOs and treasury leaders must know?

These options have hard consequences – with implications on innovation, growth, financial performance and more. Consider the outcomes:

What’s the alternative?

There is a better way to finance supply chain programmes: eliminate the Promise-to-Pay obligation that you give for an invoice funded by SCF.

What supply chain partners really need is clear. For buyers, the need is for an efficient, quick, and simple way to pay suppliers that doesn’t require obligations to financial institutions. For suppliers, the need is for a simple way to get paid sooner.

The solution lies in machine learning-enabled technologies that eliminate the need for Promise-to-Pay.

Machine learning (ML) technology analyses corporates’ enterprise resource planning (ERP) data to predict the few invoices that are unlikely to get paid. The rest can then be paid instantly by a funder, such as a bank. The buyer then pays the funder back on its normal payment terms.

This delivers what SCF promises: buyers support suppliers with access to cost-effective early payments without creating new financial obligations. The result is easy, seamless payments that lower risk for all parties, optimise margins, and strengthen supply chains.

Forward-looking finance leaders are not waiting for the regulatory agencies to hammer out SCF disclosure requirements. They are acting now to put their organisations and supply partners in a better position, financially and operationally.

The window remains open for CFOs and treasurers to expand the options they have for financing supply chain programmes. By adopting a model that relies on artificial intelligence rather than lending, organisations can keep supply chain relationships strong, fund innovation, and build value for stakeholders and shareholders alike.

Change is coming, and the technology is ready to pave a new future for SCF. It is no longer a question of ‘if’, the time to analyse the potential impact on your business and proactively make changes is now.