To provide immediate cash flow for small- to medium-sized businesses (SMBs), the American Institute of CPAs (AICPA) is asking for the Federal Reserve to make a short-term accounts receivable (AR) lending facility that is federally backed, according to an announcement.
The proposal by the association puts forward the idea of a 90- to 180-day lending arrangement with the federal government.
“Accounts receivable at many businesses continue[s] to grow as their customers hold onto cash,” Jason Brodmerkel, CPA, AICPA senior manager, Accounting Standards, said in the announcement. “Some businesses need additional assistance to fund their receivables because of slow-paying customers. Providing liquidity for accounts receivable would help encourage growth and investments in business.”
Under the AICPA’s proposal, the Board of Governors of the Federal Reserve System, with its five members in full agreement on a vote and the Secretary of the Treasury’s approval, would give the go-ahead for the creation and operation of a short-term AR lending facility. The Fed would, in turn, commit to lend to a Special Purpose Vehicle (SPV) on "a recourse basis." Then, with funds from a CARES Act section, the Treasury would make an equity investment into the given SPV.
Companies would pledge their receivables, and, once approved, the Fed would offer “a reasonable discount rate of the receivable/invoiced amount with no repayment due for six months,” according to the announcement. After that time, a payment plan would be in place for the seventh through the twelfth month. And further loans to individual companies for future receivables would be permitted “with the entire facility remaining open for one year to include receivable payments.”
As previously reported, the impact of the coronavirus pandemic on B2B supplier payments has created two extremes. Retailers like clothing companies are cutting orders and lengthening payment terms, if not calling off payments outright, while grocers have broadly sped up their vendor payment processes to bolster the financial health of their supply chains.