{"id":127029,"date":"2019-07-11T07:22:17","date_gmt":"2019-07-11T07:22:17","guid":{"rendered":"https:\/\/www.bnreport.com\/accounting-cashflows-and-the-quirk-of-factoring\/"},"modified":"2019-07-11T07:22:17","modified_gmt":"2019-07-11T07:22:17","slug":"accounting-cashflows-and-the-quirk-of-factoring","status":"publish","type":"post","link":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/","title":{"rendered":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d"},"content":{"rendered":"<p><img decoding=\"async\" src=\"https:\/\/www.cityam.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-960x520.jpg\" \/><\/p>\n<p>A common factor in the recent<br \/>demise of <a href=\"https:\/\/www.bbc.co.uk\/news\/business-42811707\" rel=\"noreferrer noopener\" target=\"_blank\">Carillion<\/a> in<br \/>the United Kingdom and previously of <a href=\"https:\/\/uk.reuters.com\/article\/abengoa-bonds\/abengoa-3-0-hits-a-glitch-as-maturities-loom-idUKL6N0T72XT20141118\" rel=\"noreferrer noopener\" target=\"_blank\">Abengoa<\/a> in<br \/>Spain was creditor factoring used to bridge liquidity shortfalls. Creditor<br \/>factoring generally delays payments to creditors to fund a companys<br \/>operations. Such arrangements may help companies in smoothing reported cash<br \/>flows in the near term but creates an obligation to pay in the future. However,<br \/>if the liquidity problem aggravates in the near term, it turns the clock ticking<br \/>down against potential opportunities that could arise in the future.<\/p>\n<p>The lack of transparency in reporting for such arrangements distort cash flow statements which a lot of investors use as a starting point. Unlike economic deterioration in liquidity and use of additional borrowing to firefight the current crisis \u2013 financial reporting paints a rosy picture of improving operating cash flows instead of reporting an increase in borrowing.<\/p>\n<p>For investors, the key issue is<br \/>to identify at what point in time a trade creditor (included in working capital<br \/>changes; i.e., operating cash flows) becomes a financing liability (included in<br \/>leverage calculations; i.e., financing cash flows). Current accounting practice<br \/>does not specifically cover creditor factoring, and company management can use<br \/>it without any specific disclosure requirements. This, however, is vitally<br \/>important information for investors to identify in a timely fashion and to<br \/>adjust in performance and leverage ratios. An omission to make a timely adjustment<br \/>would overstate operating cash flows and understate leverage ratios.<\/p>\n<p>A simple way to understand creditor factoring is considering an example of a cable tv provider. A customer asks to cancel his monthly subscription of \u00a3100 as he will be temporarily out of job. The service provider, who does not wish to lose a customer, offers to delay the payment term from paying each month to paying after 6 months (so January subscription is paid on the last day of June). The customer agrees to the extended term and thus improves his monthly net cashflows by saving \u00a3100 each month. Until the new payment cycle kicks in, the customer has saved \u00a3500 (\u00a3600 for 6 months service \u2013 \u00a3100 payment at the end of 6th month).<\/p>\n<p>However, this in effect is a<br \/>debt. When the subscription arrangement eventually ends, the customer will have<br \/>to pay \u00a3500 to his service provider.<\/p>\n<p>Following this example, lets<br \/>assume that a company with strong bargaining power forces a weak supplier to<br \/>accept longer credit terms. The company is effectively making the supplier fund<br \/>its working capital.<\/p>\n<p>This scenario, however, could<br \/>create liquidity problems for the supplier. So, the company uses its banking<br \/>relationship to offer its supplier a factoring facility that could be cheaper<br \/>and more effective than the suppliers own factoring arrangements. This is an<br \/>example of \u201c<a href=\"https:\/\/blogs.cfainstitute.org\/marketintegrity\/2019\/07\/09\/reverse-factoring-undisclosed-borrowing-to-smooth-operating-cashflows-volatility\/\" rel=\"noreferrer noopener\" target=\"_blank\">bad<br \/>reverse factoring<\/a>\u201d which will not show up anywhere in accounts,<br \/>except in a lagging bloated account balance of \u201ctrade and other creditors.\u201d<\/p>\n<p>Lets stick with this same<br \/>example but assume that the supplier has a stronger bargaining power instead of<br \/>the company. In this case, the supplier will not agree to an extension of the<br \/>payment period or alternatively could force shorter payment periods. Here, the<br \/>comp<a href=\"https:\/\/www.cityam.com\/cashflows-and-creditor-factoring\/\" rel=\"noreferrer noopener\" target=\"_blank\"><strong>Read More<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A common factor in the recent<br \/>\ndemise of Carillion in<br \/>\nthe Uni..<\/p>\n","protected":false},"author":1,"featured_media":127030,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[202],"tags":[],"class_list":["post-127029","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report<\/title>\n<meta name=\"description\" content=\"A common factor in the recent demise of Carillion in the Uni..\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report\" \/>\n<meta property=\"og:description\" content=\"A common factor in the recent demise of Carillion in the Uni..\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/\" \/>\n<meta property=\"og:site_name\" content=\"Business News Report\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Business-NewsReport-328225811095934\/\" \/>\n<meta property=\"article:published_time\" content=\"2019-07-11T07:22:17+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"360\" \/>\n\t<meta property=\"og:image:height\" content=\"160\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"infopal11\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@BNReport\" \/>\n<meta name=\"twitter:site\" content=\"@BNReport\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"infopal11\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/\"},\"author\":{\"name\":\"infopal11\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#\\\/schema\\\/person\\\/19d1c5a2dd7f60584a09de4a7805d68f\"},\"headline\":\"Accounting Cashflows and the Quirk of \u201cFactoring\u201d\",\"datePublished\":\"2019-07-11T07:22:17+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/\"},\"wordCount\":493,\"publisher\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2019\\\/07\\\/factoring-illustration-02-360x160.jpg\",\"articleSection\":[\"Finance\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/\",\"name\":\"Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2019\\\/07\\\/factoring-illustration-02-360x160.jpg\",\"datePublished\":\"2019-07-11T07:22:17+00:00\",\"description\":\"A common factor in the recent demise of Carillion in the Uni..\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#primaryimage\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2019\\\/07\\\/factoring-illustration-02-360x160.jpg\",\"contentUrl\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2019\\\/07\\\/factoring-illustration-02-360x160.jpg\",\"width\":360,\"height\":160},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/accounting-cashflows-and-the-quirk-of-factoring\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"\u0627\u0644\u0631\u0626\u064a\u0633\u064a\u0629\",\"item\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Accounting Cashflows and the Quirk of \u201cFactoring\u201d\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#website\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/\",\"name\":\"Business News Report\",\"description\":\"Latest News on the World of Politics &amp; Business\",\"publisher\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#organization\",\"name\":\"\u0628\u0632\u0646\u0633 \u0631\u064a\u0628\u0648\u0631\u062a \u0627\u0644\u0627\u062e\u0628\u0627\u0631\u064a\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#\\\/schema\\\/logo\\\/image\\\/\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2020\\\/12\\\/LOGO2.png\",\"contentUrl\":\"https:\\\/\\\/www.bnreport.com\\\/wp-content\\\/uploads\\\/2020\\\/12\\\/LOGO2.png\",\"width\":200,\"height\":50,\"caption\":\"\u0628\u0632\u0646\u0633 \u0631\u064a\u0628\u0648\u0631\u062a \u0627\u0644\u0627\u062e\u0628\u0627\u0631\u064a\"},\"image\":{\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#\\\/schema\\\/logo\\\/image\\\/\"},\"sameAs\":[\"https:\\\/\\\/www.facebook.com\\\/Business-NewsReport-328225811095934\\\/\",\"https:\\\/\\\/x.com\\\/BNReport\",\"https:\\\/\\\/www.instagram.com\\\/business.newsreport\"]},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/#\\\/schema\\\/person\\\/19d1c5a2dd7f60584a09de4a7805d68f\",\"name\":\"infopal11\",\"url\":\"https:\\\/\\\/www.bnreport.com\\\/en\\\/author\\\/infopal11\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report","description":"A common factor in the recent demise of Carillion in the Uni..","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/","og_locale":"en_US","og_type":"article","og_title":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report","og_description":"A common factor in the recent demise of Carillion in the Uni..","og_url":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/","og_site_name":"Business News Report","article_publisher":"https:\/\/www.facebook.com\/Business-NewsReport-328225811095934\/","article_published_time":"2019-07-11T07:22:17+00:00","og_image":[{"width":360,"height":160,"url":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg","type":"image\/jpeg"}],"author":"infopal11","twitter_card":"summary_large_image","twitter_creator":"@BNReport","twitter_site":"@BNReport","twitter_misc":{"Written by":"infopal11","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#article","isPartOf":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/"},"author":{"name":"infopal11","@id":"https:\/\/www.bnreport.com\/en\/#\/schema\/person\/19d1c5a2dd7f60584a09de4a7805d68f"},"headline":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d","datePublished":"2019-07-11T07:22:17+00:00","mainEntityOfPage":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/"},"wordCount":493,"publisher":{"@id":"https:\/\/www.bnreport.com\/en\/#organization"},"image":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#primaryimage"},"thumbnailUrl":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg","articleSection":["Finance"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/","url":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/","name":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d - Business News Report","isPartOf":{"@id":"https:\/\/www.bnreport.com\/en\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#primaryimage"},"image":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#primaryimage"},"thumbnailUrl":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg","datePublished":"2019-07-11T07:22:17+00:00","description":"A common factor in the recent demise of Carillion in the Uni..","breadcrumb":{"@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#primaryimage","url":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg","contentUrl":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2019\/07\/factoring-illustration-02-360x160.jpg","width":360,"height":160},{"@type":"BreadcrumbList","@id":"https:\/\/www.bnreport.com\/en\/accounting-cashflows-and-the-quirk-of-factoring\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"\u0627\u0644\u0631\u0626\u064a\u0633\u064a\u0629","item":"https:\/\/www.bnreport.com\/en\/"},{"@type":"ListItem","position":2,"name":"Accounting Cashflows and the Quirk of \u201cFactoring\u201d"}]},{"@type":"WebSite","@id":"https:\/\/www.bnreport.com\/en\/#website","url":"https:\/\/www.bnreport.com\/en\/","name":"Business News Report","description":"Latest News on the World of Politics &amp; Business","publisher":{"@id":"https:\/\/www.bnreport.com\/en\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.bnreport.com\/en\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.bnreport.com\/en\/#organization","name":"\u0628\u0632\u0646\u0633 \u0631\u064a\u0628\u0648\u0631\u062a \u0627\u0644\u0627\u062e\u0628\u0627\u0631\u064a","url":"https:\/\/www.bnreport.com\/en\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.bnreport.com\/en\/#\/schema\/logo\/image\/","url":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2020\/12\/LOGO2.png","contentUrl":"https:\/\/www.bnreport.com\/wp-content\/uploads\/2020\/12\/LOGO2.png","width":200,"height":50,"caption":"\u0628\u0632\u0646\u0633 \u0631\u064a\u0628\u0648\u0631\u062a \u0627\u0644\u0627\u062e\u0628\u0627\u0631\u064a"},"image":{"@id":"https:\/\/www.bnreport.com\/en\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/Business-NewsReport-328225811095934\/","https:\/\/x.com\/BNReport","https:\/\/www.instagram.com\/business.newsreport"]},{"@type":"Person","@id":"https:\/\/www.bnreport.com\/en\/#\/schema\/person\/19d1c5a2dd7f60584a09de4a7805d68f","name":"infopal11","url":"https:\/\/www.bnreport.com\/en\/author\/infopal11\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/posts\/127029","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/comments?post=127029"}],"version-history":[{"count":0,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/posts\/127029\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/media\/127030"}],"wp:attachment":[{"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/media?parent=127029"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/categories?post=127029"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bnreport.com\/en\/wp-json\/wp\/v2\/tags?post=127029"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}