Enhanced Disclosure Rules for Supplier Finance Arrangements under Ind AS 7

1. Introduction

Supplier Finance Arrangement also referred as supply chain financing, or payables financing, is a financial arrangement that allow an entity to offer its suppliers an option of early payment through a third-party financier. The entity enters into these arrangement for managing working capital. However, the investors and regulators have expressed their concerns over the use of this arrangement. It is observed that the entity uses this arrangement to disguise borrowings as trade payables, and thereby inflates the operating cash flows.

Ind AS 7, Statement of Cash Flows deals with the information about the cash flows of an entity which is useful in providing the user of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents. Since, the concern have been raised regarding the inflation in operating cash flows, the central government in consultation with National Financial Reporting Authority (NFRA) vide Notification No. G.S.R. 549(E) [F. NO. 01/01/2009-CL-V (PART. XIV)], dated 13-8-2025 has amended the Indian Accounting Standard (Ind AS) 7, Statement of Cash Flows.. Under this amendment, some new paragraphs like 44F, 44G, 44H has been inserted. This amendment aims to provide user of financial statement with clear and concise understanding of cash flows arising due to the supplier finance arrangements.

2. Amendment in Ind AS 7

The paragraph 44G has provided the detailed definition of the term “Supplier Finance Arrangements”. Thus, as per this para,supplier finance arrangement includes those arrangement where one or more finance providers offering to pay an amounts an entity owes to its suppliers and the entity in turn agreeing to pay the financers according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provides the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date.

The paragraph 44F requires an entity to disclose information about its supplier finance arrangements, in order to enable the users of financial statements to assess the effects of those arrangements on the entity’s liabilities and cash flows and also on the entity’s exposure to the liquidity risk.

Furthermore, the detailed disclosure of facts shall be made as para 44H. This para requires the following disclosure about the supplier finance arrangements:

(a) the terms and conditions of the arrangements (for example, extended payment terms, security or guarantees provided). However, it is important to note that an entity shall make disclose of each arrangements with different terms and conditions, separately.

(b) At the beginning and end of each reporting period, the entity shall disclose the carrying amounts and other associated line items of each of the financial liabilities, that are part of the supplier finance arrangements. Furthermore, the disclosure shall also be made with respect to the financial liabilities for which suppliers have already received payment from the finance providers.

(c) The range of payment due dates (for example, 45–60 days after the invoice date) for the financial liabilities disclosed as supplier finance arrangement.

In addition to the aforesaid disclosures, the entity shall also disclose the type and effect of non-cash changes in the carrying amounts of the financial liabilities arising from supplier finance arrangements.

3. Analysis

Case scenario for Supplier Finance Arrangement

Gamma Private Limited hereinafter referred to as “the company” is a leading manufacturer of semiconductor chips. The company procures the key components such as sensors, microchips, and circuit boards from multiple domestic suppliers.

The company credit terms with suppliers require payment within 45 days of invoice approval. However, to strengthen supplier relationships and optimise its working capital cycle, the company entered into a Supplier Finance Arrangement (SFA) with IDIDI Bank.

As per the arrangement, once the company verifies and approves a supplier’s invoice, the invoice details are uploaded to IDIDI’s online platform. Suppliers are then given the option to receive early payment from IDIDI instead of waiting for the company’s normal credit period. If a supplier opts in, IDIDI, settles the invoice with the supplier typically within 10 days of invoice approval, after deducting a small discount. As part of the agreement, the company undertakes to make payment directly to IDIDI 90 days from the invoice date, thereby effectively extending its settlement period by an additional 45 days compared to its original supplier terms.

Click Here To Read The Full Story