Does Your Supply Chain Finance Program Have Hidden Debt? What Tighter Disclosure Rules Mean for Your Program

For years, supply chain finance (SCF) has been one of the most effective ways to unlock working capital and improve liquidity. Yet one question continues to surface in boardrooms and credit reviews:

When does working capital optimization start looking like leverage?

It’s not a theoretical concern. Investors, auditors, and rating agencies are taking a much closer look at supplier finance programs, and how their structure and disclosure can materially influence how a company’s financial position is understood.

And CFOs are increasingly concerned with whether their program is designed to withstand rising scrutiny.

Transparency Is Now Part of the Value Proposition

The collapse of Carillion remains one of the clearest examples of why transparency matters.

When the UK construction company failed in 2018, its reported borrowings significantly understated the amount of financing supporting its operations. Analysts later estimated that hundreds of millions of pounds of obligations tied to reverse factoring arrangements sat outside traditional debt reporting, buried within trade payables.

Reverse factoring didn’t cause Carillion’s collapse. But the lack of visibility into the company’s financing position became part of the story and permanently changed how the industry thinks about supplier finance.

For finance leaders, the takeaway is direct:

Stakeholders must clearly see everything in play in order to fully realize the value of working capital.

New Rules, Higher Expectations

Historically, U.S. accounting standards provided little guidance on supplier finance disclosures.

That changed with FASB’s ASC 405-50 now requiring organizations to provide greater transparency, including:

• Key program terms
• Outstanding confirmed obligations
• Where obligations are presented on the balance sheet
• Year-over-year changes in program balances

Importantly, these rules do not change how obligations are recognized or measured. Many programs may still qualify for trade payable treatment.

What has changed is visibility. Investors can now evaluate the scale, growth, and strategic role of supplier finance programs more easily than they could just a few years ago.

Accounting Treatment Doesn’t Always Match Economic Reality

A common misconception is that accounting classification settles the conversation. It doesn’t. Credit rating agencies routinely perform their own analysis when assessing leverage and liquidity.

If a supplier finance program begins functioning more like corporate borrowing than trade credit, agencies may adjust leverage calculations accordingly, even if the balance remains classified as accounts payable under GAAP.

Their central question is simple:

Has this arrangement fundamentally replaced traditional borrowing?

That distinction matters to CFOs because it directly influences borrowing costs, credit ratings, and investor confidence.

Programs that preserve the commercial relationship between buyer and supplier generally maintain the strongest financial profile.

Common characteristics include:

• Payment terms negotiated directly between buyer and supplier
• Participation that remains voluntary for suppliers
• Suppliers choosing whether to receive early payment
• Buyers avoiding direct financing costs
• Standard commercial payment terms that remain consistent with industry practice

By contrast, additional scrutiny often follows when programs begin to resemble structured financing arrangements. In the case of Carillion, Fitch warned that the accounting loophole allowing companies to extend payables through supply chain finance, without classifying the obligation as debt, may be widespread, and that analysts should treat such liabilities as debt-like when they materially substitute for bank borrowing. S&P has said it may treat implicit financing from these arrangements as debt-like and adjust leverage metrics accordingly when programs are large or used aggressively.

A Practical Health Check

Every finance organization should periodically evaluate its supplier finance program through a strategic lens.

“Once a program crosses one to two billion dollars in deployed working capital, a CFO or chief accounting officer needs to start asking hard questions about the size of the off-balance-sheet treatment.” – Eric Riddle, PrimeRevenue’s Chief Commercial Officer

Consider asking:

• Are payment terms commercially driven or finance-driven?
• Would investors clearly understand our program from our disclosures?
• How would a rating agency evaluate these obligations?
• Are we relying on supplier finance to improve operational efficiency or to support ongoing cash flow needs?
• Could we confidently explain our program to our board, auditors, and shareholders?

The strongest finance organizations evaluate these issues before external stakeholders ask them.

Designing for Scrutiny

Supply chain finance remains one of the most powerful tools available to finance leaders.

When thoughtfully designed, it strengthens liquidity and supplier resilience across the enterprise without sacrificing operational efficiency.

But effective working capital management is no longer the whole job. The lesson of Carillion isn’t “don’t use reverse factoring.” It’s “don’t let it become something you can’t see.”

It requires transparency, deliberate program design, and a clear read on how investors, auditors, and rating agencies evaluate financial risk.

The organizations best positioned for long-term success will build programs designed for resilience and supported by clear governance.