Hiding Debt

Discussion in 'Markets & Economies' started by JulieW, Sep 25, 2019.

  1. JulieW

    JulieW Well-Known Member Silver Stacker

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    What could possibly go wrong?

    Australian engineering group UGL, which is working on large infrastructure projects such as Brisbane’s Cross River Rail and Melbourne’s Metro Trains, recently sent a letter to suppliers and sub-contractors informing them that as of October 15, they will be paid 65 days after the end of the month in which their invoices are issued. The company’s policy had been, until then, to settle invoices within 30 days.

    The letter then mentioned that if the suppliers want to get paid sooner than the new 65-day period, they can get their money from UGL’s new finance partner, Greensill Capital, one of the biggest players in the fast growing supply chain financing industry, in an arrangement known as “reverse factoring”. But it will cost them.

    Reverse factoring is a controversial financing technique that played a major role in the collapse of UK construction giant Carillion, enabling it to conceal from investors, auditors and regulators the true magnitude of its debt.

    Here’s how it works: a company hires a financial intermediary, such as a bank or a specialist firm such as Greensill, to pay a supplier promptly (e.g. 15 days after invoicing), in return for a discount on their invoices. The company repays the intermediary at a later date. This effectively turns the company’s accounts payable into debt that is owned a financial institution. But this debt is not disclosed as debt and remains hidden.

    https://wolfstreet.com/2019/09/22/hidden-debt-loophole-becomes-popular-with-australian-corporations/
    As my Mum would say; too clever by half.​
     
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  2. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    ZipPay/Afterpay for corps?
     
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  3. openeyes

    openeyes Well-Known Member Silver Stacker

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    Yep disaster waiting to happen. Hides the liabilities. There have been a couple of big construction companies go down over the last two years who used reverse factoring.

    The main point is that for shareholders there is a lack of visibility of the real finance position of the company. Not good.
     
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