The Fortune 500 Payday Loan
Supply chain finance has finally received attention- but what about receivables factoring?
We spent time earlier this month examining how the FASB’s new disclosure requirements relating to payables factoring arrangements have finally brought some attention to companies that were boosting cash flow growth and in some cases, keeping meaningful debt from impacting their headline leverage ratios. Here are the links to those reports if you missed them:
However, investors should be aware that there are companies that have been boosting their cash flows from being on the other side of the factoring transaction by selling their receivables to third-party financing institutions. Like supply chain financing contracts, there is nothing inherently wrong with selling receivables. However, when done aggressively, it has the potential to cause distortions in cash flow growth and even obscure potential warning signs on the balance sheet.
We will examine how analysts should view these programs using Becton, Dickinson and Company (BDX) as an example.