Moody’s Fires Accounting Shot at Reverse Factoring Programs


Abengoa's Reverse Factoring Program has debt-like features, say practice widespread 


We’ve touched on the accounting issue a number of times during the last few years, essentially with supply chain finance or reverse factoring programs, the concern by companies as having programs show up as Trade Payable Debt versus normal Accounts Payable.  I’ve even gone so far as to write a white paper on the subject, see To Reclassify Trade Payable or Not? - Early Pay Programs and their Accounting Treatment  (warning, there is a small fee, so it’s a bit of shameless promotion).

But yesterday, Moody's Investors Service said in a report that Spanish environment and energy group Abengoa S.A.'s (Caa3, Negative) large-scale reverse factoring program has debt-like features.  Moody's notes that the practice is likely widespread, and possibly more so in countries or sectors where reported trade payables are longer-term in nature.

Matthew Heck, the Moody’s author of the report, commented "Lack of disclosure can make the extent of reverse factoring hard to measure, as accounting standards do not always require disclosure of this activity. If reverse factoring is not reported separately, it cannot be separately identified in standard credit metrics."

For Moody’s subscribers, you can download the report here to learn what factors contribute to reclassification risk.

The concern is the Extinguishment method, where a company uses someone else’s money to pay their suppliers, extinguish the obligation and replace it with a new obligation from the buyer to that funder.  That could be deemed borrowing.  This comes precisely at a time when these programs are now being heavily targeted at the upper middle market segment.

Beside using Receivable Purchase Agreements, Liens, etc. to outright purchase these receivables to fund programs, there are other methods I’ve seen used by banks and non banks alike.

As I mentioned in the past, the IFRS is not clear on approved trade payable finance structures. I personally think it is time to get accounting guidance on these issues, as these Buyer-led programs have proven to be a viable form of finance to suppliers.

If you have input on the subject or would like to further discuss, feel free to contact me at dgustin at

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  1. Douglas Schoch:

    Hello David – I am hopeful that you are enjoying the holiday season and will also enjoy a Happy New Year. I am not a Moody’s member but am interested to read the report by Mr. Heck if possible. Do you have any recommendation as to how I might be able to do that?
    Also – I am incorporating SCF structures into my MBA course instruction at Rutgers University this coming year. Perhaps you would allow me to use some of your writing/work, with proper citation of course! Let me know.
    Warm Regards,

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