Check whether customer payment terms provide significant financing

A customer may pay well before delivery or settle long after receiving the product. Draw a timeline showing promised transfers, invoice dates and expected payments. Then ask why the parties agreed to that timing. A deposit may protect a supplier from cancellation, provide financing or serve another contractual purpose.

IFRS 15 requires an adjustment where the agreed timing provides a significant financing benefit in transferring goods or services. The assessment considers the arrangement's substance and includes specified exceptions. Neither an advance payment nor a long invoice term answers the question without the surrounding facts.

Obtain the negotiation record, cash-price alternatives, cancellation terms and security provisions. Ask the commercial owner whether the price changed in exchange for early or delayed payment. Where a retention protects the customer against incomplete performance, document that purpose and how the amount relates to the protection provided.

Keep explanations specific. A note saying standard industry terms does not show why a particular contract has a substantial timing difference. Give the reviewer comparable offers and the parties' actual obligations. If a customer controls when prepaid goods are requested, preserve that fact because it can affect the standard's financing assessment.

IFRS 15 permits a practical expedient when the expected interval at contract inception between transferring a promised good or service and the customer's payment is one year or less. Ask the accountant to confirm eligibility and the company's election. The signed contract's overall duration is not the only date comparison to make.

A multiyear service agreement with regular payments illustrates why a contract end date can be misleading. Prepare the payment and service pattern rather than marking the whole agreement outside the expedient because it lasts several years. Conversely, a payment due soon after signing may precede delivery by more than a year, so the signing-to-invoice interval alone does not establish eligibility.

If an adjustment is required, retain the approved cash selling price, financing direction, rate inputs and calculation dates. Have the reviewer assess the rate required at contract inception. Do not replace it with a current treasury borrowing rate each month simply because that rate is easier to retrieve.

Maintain the financing component separately from the record of performance and customer billing. Reconcile the opening amount, financing movement, cash and closing balance. IFRS 15 distinguishes financing effects from customer-contract revenue; the accounting schedule should make that separation reproducible without changing the commercial amount the customer owes.

Flag negotiated extensions, accelerated receipts and changes to the delivery timetable. Keep the original assessment and document what changed. A revised collection forecast should not silently reset the contract's accounting inputs. The reviewer can then determine whether the change affects financing, a contract modification, credit losses or another part of the reporting analysis.