Supply Chain Council of European Union | Scceu.org
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EBA to introduce new EU supply chain rules

The European Banking Authority has announced it will introduce tougher standards for banks that aid in Europe’s supply chains.

The rules could classify 15% to 20% of receivables for which factoring firms bear the risk as defaulted. Supply chain finance firms pay a company’s suppliers the value of their outstanding invoices minus a discount. The suppliers get their money faster while the lenders earn a relatively safe return when the invoice is paid.

Starting with 2021, the European Banking Authority will hold lenders in the region to a common definition of default after finding big differences in how they deal with one of the most fundamental issues in banking.

The EBA’s new framework states that receivables booked on a firm’s balance sheet should be considered technically past due after 30 days. That is a problem for supply chain finance firms because big companies often pay their bills late.

A lobby group has asked the EBA to extend the grace period for late payments to 90 days, saying it would reduce the impact on the financing firms by 75%.

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