The struggles of Greensill Capital have shone a light on the increasing use of supply-chain financing, a tool that gives companies the ability to extend their payment terms to vendors.
Regulators and standard-setters are closely watching if and how companies disclose their use of the financing tool, which has come into focus amid the recent problems seen at Greensill, a major provider of supply-chain finance. The firm filed for insolvency earlier this month and is facing regulatory scrutiny.
How Does Supply-Chain Finance Work?
As part of a supply-chain finance agreement, banks provide funding to pay a company’s supplier of goods and services. The supplier is then paid earlier—but less—than it would be paid without the agreement.
…It is unclear how many companies have supply-chain finance programs. Twenty-seven companies in the S&P 500 disclosed in their 2020 annual reports they are using the tool, up from 13 the previous year, according to data provider MyLogIQ.